Markets, Contracts, or Integration? The Adoption, Diffusion, and Evolution of Organizational Form

The rise of contract farming and vertical integration is one of the most important changes in modern agriculture. Yet the adoption and diffusion of these new forms of organization has varied widely across regions, commodities, or farm types, however. Transaction cost theories and the like are not fully effective at explaining the variation of adoption rates of different organizational forms, in part because of their inherent static nature. In order to explain the adoption, diffusion and evolution of organizational form, a more dynamic framework is required. This paper lays out such a framework for understanding the evolution of organizational practices in U.S. agriculture by drawing on existing theories of economic organization, the diffusion of technological innovation, and organizational complementarities. Using recent trends as stylized facts we argue that the agrifood sector is characterized by strong complementarities among its constituent features and that these complementarities help explain the stylized facts. We also discuss several testable hypotheses concerning changes in organizational form in agriculture.contracting, vertical integration, organizational innovation, diffusion, Institutional and Behavioral Economics, L14, L22, Q13, O33,

The Theory of the Firm and Its Critics A Stocktaking and Assessment

Ever since its emergence in the 1970s the modern economic or Coasian theory of the firm has been discussed and challenged by sociologists, heterodox economists, management scholars, and other critics. This chapter reviews and assesses these critiques, focusing on behavioral issues (bounded rationality and motivation), process (including path dependence and the selection argument), entrepreneurship, and the challenge from knowledge-based theories of the firm.

The theory of the firm and its critics: a stocktaking and assessment

Includes bibliographical references."Prepared for Jean-Michel Glachant and Eric Brousseau, eds. New Institutional Economics: A Textbook, Cambridge, Cambridge University Press.""This version: August 22, 2005."Since its emergence in the 1970s the modern economic or Coasian theory of the firm has been discussed and challenged by sociologists, heterodox economists, management scholars, and other critics. This chapter reviews and assesses these critiques, focusing on behavioral issues (bounded rationality and motivation), process (including path dependence and the selection argument), entrepreneurship, and the challenge from knowledge-based theories of the firm

Economies of Scope, Resource Relatedness, and the Dynamics of Corporate Diversification

Research summary: The dominant view has been that businesses that are more related to each other are more often combined within diversified firms. This study uses a dynamic model to demonstrate that, with inter-temporal economies of scope, diversified firms are more likely to combine moderately related businesses than the most-related businesses. That effect occurs because strong relatedness reduces redeployment costs and makes firms redeploy all resources to better performing businesses. The strength of that effect depends on inducements for redeployment measured as the current return advantage of one business over another business, volatilities of business returns, and correlation of those returns. This study develops hypotheses for those relationships and suggests empirical operationalizations, encouraging empiricists to retest the implications of relatedness for the dynamics of corporate diversification. Managerial summary: It is believed that diversified firms are more likely to combine more-related businesses because relatedness enables sharing of resources between businesses. Indeed, a firm can apply knowledge created in one business to another business, avoiding costly duplication in knowledge development. Resource sharing also adds value when a firm offers several products, adding the convenience of one-stop shopping and charging higher prices. However, resource sharing is not the only motivation for corporate diversification. In environments where profitability of businesses changes frequently, firms diversify by redeploying part of resources from an underperforming business to a better performing business. This study uses a dynamic model to demonstrate that, with that second motivation for corporate diversification, firms end up combining moderately related businesses rather than the most-related businesses

A Stocktaking and Assessment

Ever since its emergence in the 1970s the modern economic or Coasian theory of the firm has been discussed and challenged by sociologists, heterodox economists, management scholars, and other critics. This chapter reviews and assesses these critiques, focusing on behavioral issues (bounded rationality and motivation), process (including path dependence and the selection argument), entrepreneurship, and the challenge from knowledge-based theories of the firm. JEL Codes: B4, D23, L14, L2

A Stocktaking and Assessment

Ever since its emergence in the 1970s the modern economic or Coasian theory of the firm has been discussed and challenged by sociologists, heterodox economists, management scholars, and other critics. This chapter reviews and assesses these critiques, focusing on behavioral issues (bounded rationality and motivation), process (including path dependence and the selection argument), entrepreneurship, and the challenge from knowledge-based theories of the firm

Corporate venture capital : the impact of industry relatedness between CVC parent company and startup on the startup’s performance

M&A literature reports that the relatedness of an acquiror and a target positively impacts the outcome of the deal and the subsequent performance of the new entity. The superior performance is explained by resource-based and transaction-cost arguments. In corporate venture capital (CVC), investors and startups are reported to benefit both from a “symbiotic relationship” when the CVC’s investment is driven by strategic intentions. These relationships result in more positive outcomes for both the startup and the CVC, measured among others by startup valuations, innovation output or financial performance. Based upon these findings, this study explores on whether industry relatedness between a CVC and a startup impacts the startup performance. Using a dataset of 891 CVC deals from European CVC investors it investigates how industry relatedness impacts the occurrence of a startup IPO. The results of the analysis suggest that no significant relationship exists between industry relatedness and the IPO likelihood of the startup. However, this study is subject to several limitations that leave space for future research in this domain.A literatura sobre fusões e aquisições relata que o relacionamento de um comprador e de uma empresa-alvo tem um impacto positivo no resultado do negócio e no desempenho subsequente da nova entidade. O desempenho superior é explicado por argumentos baseados nos recursos e nos custos de transacção. No Corporate Venture Capital (CVC), os investidores e as startups beneficiam ambos de uma "relação simbiótica" quando o investimento do CVC é motivado por intenções estratégicas. Estas relações resultam em resultados mais positivos tanto para a startup como para o CVC, medidos, entre outros, por valorização de startups, produção de inovação ou desempenho financeiro. Com base nestes resultados, este estudo explora se a relação em termos de indústria entre um CVC e uma startup tem impacto no desempenho da startup. Utilizando uma amostra de 891 negócios de CVC de investidores europeus, este projeto investiga de que forma a relação entre a indústria de cada uma das partes tem impacto na ocorrência de uma OPI pela startup. Os resultados da análise sugerem que não existe uma relação significativa entre a relação entre a indústria e a probabilidade de uma OPI de startup. No entanto, este estudo está sujeito a várias limitações que deixam espaço para a investigação futura neste domínio

Organizations and Markets

Austrian economics focuses on markets, but has much to say about organizations. In particular, Austrian insights on the structure of production, the heterogeneity and subjectivity of resources, the nature of uncertainty, the role of monetary calculation, and the function of the entrepreneur provide solid foundations for a distinctly Austrian theory of organizations. We review these insights, discuss recent literature on Austrian economics and the theory of the firm, and suggest new directions for developing and extending an Austrian approach to organizations

Entrepreneurship and the Economic Theory of the Firm

In Knight‟s (1921) view, firm organization, profit and loss, and entrepreneurship are inex tricably linked. These phenomena arise as an embodiment, a result, and a cause, respectively, of commercial experimentation a view founded on a particular ontology of the world as essentially open - ended and not deterministic (1921: chapter 7). Few econom ists have followed Knight in linking the firm, profit and loss, and entrepreneurship, 1 especially from his philosophical starting points. And yet, as we noted in the beginning of this book, there are many good reasons to treat the theory of entrepreneurship and the theory of the firm together. Such a synthesis informs many foundational ques tions in economics, business strategy, and public policy: Can we meaningfully address entrepreneurship without considering the organization in which such entrepreneurship takes place? How does the structure of the firm influence entrepreneurial actions? Ho w does firm organization (e.g., the allocation of residual income and control rights) affect the quantity and quality of entrepreneurial ideas? And so on. To answer theses, we need to bring the theory of the firm and entrepreneurship literatures into close contact. And yet, the important connections between these two bodies of literature have been largely overlooked. We seek to identify and establish some of those connections in this and the next two chapters

Investment Motives and Non-Traditional Foreign Direct Investment

This dissertation examines the characteristics and performance of non-traditional investment motives, with a secondary focus on small-employment subsidiaries. It also investigates how firms re-evaluate and change their organizational control after an industry-wide consumer confidence crisis. Essay 1 (Chapter 2) examines the characteristics and performance of subsidiaries according to different investment purposes, with a special emphasis on non-traditional investment motives. The key characteristics examined in Essay 1 include the size of an affiliate, the ownership mode, expatriate control, and performance. It finds that FDI with a support function differs substantially from a typical manufacturing facility. Meanwhile, there is a huge difference among sub-categories of major investment motives. Essay 2 (Chapter 3) examines the relationship between subsidiary size and survival. The main theoretical lens is the liability of smallness and orchestration theory. Using a large sample of Japanese FDI, we found that small subsidiaries have a higher exit rate than large ones. Further, this relationship is moderated by four factors: (1) serving as a center of importance; (2) vertical investment; (3) being in a human-capital-intensive industry; and (4) being located in a developed country. Essay 3 (Chapter 4) examines MNEs’ responses to an industry-wide consumer confidence crisis. This study draws on the theoretical lens of transaction cost economics (TCE) and institutional theory. This study finds that Japanese MNEs in the crisis sector undertook more entries, especially in the service segment. MNEs also undertook fewer exits in the crisis sector, especially in the manufacturing segment. Due to demand uncertainty induced by the crisis, MNEs lowered their ownership level to reduce their exposure to risk in the crisis sector, especially in the manufacturing segment. Moreover, majority owners were more likely to increase organizational control, compared with minority owners. Majority owners were also more likely to exit, compared with WOS or minority owners. On the whole, this dissertation challenges our existing view of a “typical” subsidiary in a “typical” investment setting. It also reemphasizes the centrality of investment motives to firm internationalization research and recommends a routine inclusion of investment motives in IB research