产业组织理论-the theory of the firm

Topic 2. Team production: Free Rider problem
Question 1: Why does the monk shirk? Each monk can only capture a fraction of the total benefit. Question 2 : How to solve the shirking problem? Possible solution: Hire a monitor who tries to measure inputs and distributes output .
Baidu Nhomakorabea
Topic 3. Incomplete Contract and the Theory of the Firm
Compare the net benefit (i)Vertical Separation VS= 0.375(1+d2) (ii)1-type Integration V1I = 0.5 (iii)2-type Integration V2I = 0.5*d2
Topic 3. Incomplete Contract and the Theory of the Firm
(ii) 1-type Integration 1 owns A and B, by owns the two input , 1 has the rights to dispose the two input , thus has stronger bargaining power than 2 The net benefit of 1 is v1=(e1+de2)-0.5*e12. Thus 1’s effort is e1= 1; The net benefit of 2 is v2=0*(e1+de2)-0.5*e22. Thus 1’s effort is e2= 0; Total net benefit: V1I = 0.5 (iii) 2-type Integration e1= 0, e2= d V2I = 0.5*d2
Topic 1. Traditional theory: technological view
Core idea: the minimum average cost determine its size, the most efficient size
Question: Why should economies of scale be exploited within a firm?
two agent 1,2 ; two input A ,B ,initially 1 owns A ,2 owns B Three forms of organization: (i) Vertical Separation: 1 owns A and 2 owns B . (ii) 1-type Integration: 1 is the owner of the firm, i.e. 1 owns A and B . (iii) 2-type Integration : 2 is the owner of the firm, i.e. 2 owns A and B . The value of the output is v=e1+de2, cost 0.5*e12, 0.5*e22.
Lecture 1 : The Theory of the Firm
Lecture 1 The Theory of the Firm
I. Two basic question II. Three branches of theories Topic 1. Traditional theory: technological view Topic 2. Team production Topic 3. Incomplete contract
Topic 3. Incomplete Contract and the Theory of the Firm
Williamson(1975,1985): Bring the transaction within a firm will offer safeguards against opportunistic behavior.
Topic 3. Incomplete Contract and the Theory of the Firm
Grossman and Hartman(1986) Organization ex post bargaining positions surplus division Key result: The owner of the firm has stronger bargaining
Topic 3. Incomplete Contract and the Theory of the Firm
(i) Vertical Separation 1 owns A and 2 owns B, the ex post is divided through bargaining, and each party’s bargaining power is symmetric The net benefit of 1 is v1=0.5*(e1+de2)-0.5*e12. Thus 1’s effort is e1=0.5; The net benefit of 2 is v2=0.5*(e1+de2)-0.5*e22. Thus 1’s effort is e2=0.5d; Total net benefit: VS= e1+de2-0.5*e12-0.5*e22 = 0.375(1+d2)
Consider a monk hauls water by himself , and the volume of water depends on his effort e. Let the benefits and cost (measured in dollars) be respectively denoted by e and .5*e2 Net benefit: π(e)= e -0.5*e2 thus the monk will choose efficient level of effort e*=1, Now for team cooperation. Suppose that two monks decide to form a group, and their benefit is simply e1+ e2 The net benefit of one monk is .5*(e1+ e2)- 0.5*ei2 , i=1,2 => ei=0.5 <1
Topic 3. Incomplete Contract and the Theory of the Firm
Why is contract incomplete? 1, indescribable, unforeseen contingencies 2, writing cost 3, unverifiable Two stories S. Grossman; “The Clever King Solomon”
Topic 2. Team production: Free Rider problem
New problem:
Who monitors the monitor? What should we do if they collude? Why should one listen to the monitor? Authority! The main problem: it does offer an explanation for firm boundaries, contract execution is independent of institutional setting (firm or market). But things change dramatically if contracts are incomplete.
Why can’t one merge two firms into one , while duplicate the market outcome (through selective intervention)
Topic 2. Team production: Free Rider problem
I. Two basic question
Why do firms exist :
•
What determines its size?
II. Three branches of views
Traditional theory: technological view Team production: Free Rider problem Incomplete Contract Theory
Intuition: The owner of the important input should own the firm!
Topic 3. Incomplete Contract and the Theory of the Firm
Long, long ago, there was a king. Solomon was his name. He was very clever. In his country, there were two women. They lived in same house and each had a baby. One night, one of the babies died. The dead mother took the other woman’s baby, and put it in her own bed. The next morning, they had a quarrel. “No, this is my baby! The dead baby is yours!” Each one wanted the living baby. So they went to see King Solomon. “Bring me a knife, cut the child into two and give each woman one half.” said the King. “Oh, your Majesty! Give her my baby. Please don’t kill my baby!” Then King Solomon pointed to the woman in tears and said: “Give the baby to her. She is the mother.”
power, thus the optimal ownership depend on whose effort is relatively more important
Let’ do some formal stuff!
Topic 3. Incomplete Contract and the Theory of the Firm