Rural Financial Markets in Developing Countries

This review examines portions of the vast literature on rural financial markets and household behavior in the face of risk and uncertainty. We place particular emphasis on studying the important role of financial intermediaries, competition and regulation in shaping the changing structure and organization of rural markets, rather than on household strategies and bilateral contracting. Our goal is to provide a framework within which the evolution of financial intermediation in rural economies can be understood.Rural Finance, Financial Intermediation, Agricultural Credit

Contracting for innovation : vertical disintegration and interfirm collaboration

Rapidly innovating industries are not behaving the way theory expects. Conventional industrial organization theory predicts that, when parties in a supply chain have to make transaction-specific investments, the risk of opportunism will drive them away from contracts and toward vertical integration. Despite the conventional theory, however, contemporary practice is moving in the other direction. Instead of vertical integration, we observe vertical disintegration in a significant number of industries, as producers recognize that they cannot themselves maintain cutting-edge technology in every field required for the success of their products. In doing this, the parties are developing forms of contracting beyond the reach of contract theory models. In this Article, we connect the emerging contract practice to theory, learning from what has happened in the real world to frame a theoretical explanation of this cross-organizational innovation and to reconceptualize the boundaries of the firm accordingly. We argue that the vertical disintegration of the supply chain in many industries is mediated neither by fully specified technical interfaces that allow suppliers to produce a modular piece of the ultimate product, nor by entirely implicit relational contracts supported only by norms of reciprocity and the expectation of future dealings. Rather, we suggest that the change in the boundary of the firm has given rise to a new form of contracting between firms -- what we call "contracting for innovation." This pattern braids explicit and implicit contracting to support iterative collaborative innovation by raising switching costs. These costs, represented by the parties' parallel transaction-specific investments in knowledge about their collaborators' capacities, deter opportunism under circumstances where explicit contracting, renegotiation, and the anticipation of future dealings cannot

Social capital and management innovation: The case studies of two Chinese Private SMEs

China’s small and medium-sized private enterprises play a vital role in promoting economic growth, technological progress and social development. This thesis investigates the survival environment of China’s small and medium-sized enterprises, discusses their responses to various market risks and systemic obstacles and more deeply explores why they have become the main drivers of Chinese economic growth. Firstly, this thesis systematically reviews the development history and relevant research of China’s small and medium-sized enterprises. Secondly it reviews theory on small enterprises’ corporate governance, social capital theory and incentive theory. Thirdly, we analyze two cases of Chinese private enterprises with the purpose to illustrate emerging problems, devise possible solutions and seek clarification from the theories reviewed. The first case concerns an entrepreneurial company set up by Mr. and Mrs. Y, a couple who has worked and studied abroad. The company is engaged in the pavement construction of highways and in the sale of relevant road high-tech materials. The second case concerns a poultry and pig-breeding enterprise built by a peasant family. The main conclusion of this thesis is that private enterprises in China not only have to deal with risks caused by industry, but also have to face policy volatility and overcome financing difficulties through social capital and social networks. In national capital monopolized sectors, policy volatility will make it hard for private enterprises to survive and social capital will be faced with limitations. So private enterprises have a larger room for development in industries where state capital is less prevailing. The key reasons for the rapid development of private enterprises in China have been innovation spirit and management innovation. This is the main innovation method of the above-mentioned two enterprises.As pequenas e médias empresas (PME) privadas na China têm desempenhado um papel vital na promoção do crescimento económico, no progresso tecnológico e no desenvolvimento social. Esta tese analisa a envolvente em que as PME chinesas operam, discute a forma como respondem não só aos mais diversos riscos de mercado mas também a obstáculos sistémicos e explora as razões pelas quais se tornaram nos principais motores do crescimento económico chinês. Em primeiro lugar a tese apresenta uma perspetiva histórica do desenvolvimento da iniciativa privada na China através da literatura mais relevante. Em segundo lugar faz uma revisão teórica da governação aplicada às PME e da literatura sobre capital social e incentivos. Por fim analisa os casos de duas empresas privadas chinesas com o objetivo não só de ilustrar os principais problemas, mas também de procurar caminhos para a sua solução e de encontrar clarificação através das teorias estudadas. O primeiro caso diz respeito a uma empresa fundada pelo Sr. e pela Sra. Y, um casal que trabalhou e estudou no estrangeiro. A empresa dedica-se à construção de vias de comunicação e à venda de materiais de alta tecnologia para pavimentação.No segundo caso é estudada uma empresa de produção animal iniciada por uma família de camponeses. A principal conclusão desta tese é que as empresas privadas na China têm não só de enfrentar as barreiras próprias dos setores onde atuam, mas também de lidar com a volatilidade das políticas e de ultrapassar dificuldades de financiamento utilizando para tal o seu capital social e as suas redes de relacionamento. Em setores dominados pela presença de monopólios estatais a volatilidade das políticas é um fator que dificulta a sobrevivência das empresas e onde o capital social se defronta com as suas próprias limitações. É precisamente em setores onde o capital estatal está menos presente que as empresas privadas têm mais espaço para se desenvolverem e prosperarem. Como estes dois casos bem representam as razões principais para o rápido desenvolvimento do setor empresarial na China têm sido o espírito de inovação e a inovação em gestão

Simplistic vs. Complex Organization: Markets, Hierarchies, and Networks in an 'Organizational Triangle'

Transaction cost economics explains organizations in a simplistic ‘market-vs.-hierarchy’ dichotomy. In this view, complex real-world coordination forms are simply considered ‘hybrids’ of those ‘pure’ and ideal forms, thus being located on a one-dimensional ‘line’ between them. This ‘organizational dichotomy’ is mainly based on relative marginal transaction costs, relative lengths of value-added chains, and ‘rational choice’ of coordination form. The present paper, in contrast, argues that pure ‘market’ and ‘hierarchy’, even including their potential hybrids, are a theoretically untenable and empirically void set. Coordination forms, it is argued, have to be conceptualized in a fundamentally different way. A relevant ‘organizational space’ must reflect the dimensions of a complex world such as dilemma-prone direct interdependence, resulting in strong strategic uncertainty, mutual externalities, collectivities, and subsequent emergent process. This, in turn, will lead either to (1) informally institutionalized, problem-solving cooperation (the instrumental dimension of the institution) or (2) mutual blockage, lock-in on an inferior path, or power- and status-based market and hierarchy failure (the ceremonial dimension of the institution). This paper establishes emergent instrumental institutionalized cooperation as a genuine organizational dimension which generates a third ‘attractor’ besides ‘market’ and ‘hierarchy’, i.e., informal network. In this way, an ‘organizational triangle’ can be generated which may serve as a more relevant heuristic device for empirical organizational research. Its ideal corners and some ideal hybrids on its edges (such as ideal clusters and ideal hub&spoke networks) still remain empirically void, but its inner space becomes empirically relevant and accessible. The ‘Organizational Triangle’ is tentatively applied (besides casual reference to corporate behavior that has lead to the current financial meltdown), by way of a set of criteria for instrumental problem-solving and a simple formal algorithm, to the cases of the supplier network of ‘DaimlerChrysler US International’ at Tuscaloosa, AL, the open-source network Linux, and the web-platforms Wikipedia and ‘Open-Source Car’. It is considered to properly reflect what is generally theorized in evolutionary-institutional economics of organizations and the firm and might offer some insight for the coming industrial reconstructions of the car and other industries.Market vs. Hierarchy; Transaction Costs; Complexity; Institutionalization; Network Formation; Hub&Spoke Supplier Networks; Open-Source Networks

Determinants of Financial Capital Use: Review of theories and implications for rural businesses. Factor Markets Working Paper No. 19, February 2012

This paper presents a review of financial economics literature and offers a comprehensive discussion and systematisation of determinants of financial capital use. In congruence with modern financial literature, it is acknowledged here that real and financial capital decisions are interdependent. While the fundamental role of the (unconstrained) demand for real capital in the demand for finance is acknowledged, the deliverable focuses on three complementary categories of the determinants of financial capital use: i) capital market imperfections; ii) factors mitigating these imperfections or their impacts; and iii) firm- and sector-related factors, which alter the severity of financial constraints and their effects. To address the question of the optimal choice of financial instruments, theories of firm capital structure are reviewed. The deliverable concludes with theory-derived implications for agricultural and non-agricultural rural business’ finance

Capabilities and the Theory of the Firm

The recent decade has witnessed a strong expansion of work on the firm, both from a capabilities perspective and from a contractual perspective. These two bodies of theories are often thought to be fundamentally different, because their domains of applications are different (knowledge-accumulation vs contracts and incentives). However, we need to integrate propositions from capabilities perspectives with ideas about economic organization (markets, hybrids, firms). This is because only a more unified theory will allow us to understand such issues as the dynamics of the modern corporation, and, more topically, the costs and benefits of outsourcing. I discuss the relations between these two bodies of theories. It is possible to argue in favor of a relation of complementarity between the two and pursue a research strategy on this basis. However, it is also possible two claim that they are rivals. Along this line, it is argued that the capabilities perspective contains propositions about economic organization that are not to be found within the modern Coasian approach to economic organization, and thus may be seen as a distinct emerging perspective on economic organization.Economic organization, capability, tacit knowledge

The influence of trust on risk allocation in chinese PPP projects

In order to improve the performance of PPP project management, remarkable numbers of work has been done by theorists and practitioners. However, the incentive of PPP partners has not fully been interrogated. When looking for an incentive approach of project governance, we found proper risk allocation as a motivating factor. It suggests that proper risk allocation allows contractor control construction costs reasonably, and gain compensation from the contract status changes, to ensure the profits expected at the end of the construction process. Currently, despite the fact that proper risk allocation has been recognized by practitioners to have a positive impact on the performance of project management, however, due to the lack of trust and trust insufficient supplies from PPP partners when designing risk allocation. Therefore, the purpose of this research is to explore the impact mechanism of PPP partners’ trust on proper risk allocation scheme formation and mechanism chain in which contractor achieves compensation as the contract status changed to form "trust-PPP partners proper risk allocation-PPP partners act dutifully while obtaining compensation when contract status changed positive loop adaptive process has become an important key scientific problem. Specifically, this thesis is discussed in the following four areas: 1. Theoretical sort of trust and risk allocation in PPP project: we analyzed research progress of risk allocation in PPP project from the perspectives of technology, organization and contract paradigms. Based on the sorting existing literature of trust, we analyzed fit of trust and risk allocation with paradigm tension as foothold, and proposed the potential impact of trust on the formation of risk allocation scheme. 2. Research design employed qualitative and quantitative study for reliability: Trust in construction project involves characteristics of scenarios dependency and moral risk, where data reliability issue has become a bottleneck of development of trust research in PPP project. Therefore, by having focus groups to explore on the optimal projection and ‘scenario into’ semi-structured interview process design module, we designed targeting approaches for trust and risk allocation study. 3. Building of ‘trust, proper risk allocation and contract status changes compensation’ theoretical assumptions model based on exploratory analysis with grounded theory and interpretation of literature: due to the gap in the literature which explores the relationship between trust and risk allocation, initial exploratory analysis model along with grounded theory and the analysis of social exchange based on reciprocity, social capital, and incomplete contract theories, we build driver, moderating theoretical assumptions model between trust, proper risk allocation and contract status changes compensation. 4. Empirical Analysis from questionnaire: by fixing existing scales of trust and proper risk allocation, hypothesis testing were answered through questionnaire survey, where it revealed driving action of trust on the formation of proper risk allocation and risk-sharing non-moderating act of trust on the relationship between proper risk allocation and contract status changes compensation.Nos últimos anos temos assistido ao aparecimento de um grande número de trabalhos realizados quer por académicos quer por gestores sobre como melhorar o desempenho da gestão de projetos das PPPs. Contudo, somos da opinião que os incentivos dos parceiros não foram totalmente analisados em especial no que respeita à alocação do risco enquanto fator motivador. Apesar da alocação do risco ter sido reconhecida pelos gestores como tendo um impacto positivo no desempenho da gestão de projetos, aquando da definição da alocação existe uma falta de confiança ou esta é insuficiente entre os parceiros das PPPs, o que prejudica o resultado final. O propósito desta tese é pois investigar o mecanismo do impacto da confiança entre os parceiros das PPPs na formação do sistema de alocação do risco adequado e na cadeia de compensações para o contratante quando ocorrem mudanças contratuais. Mais especificamente, esta tese abordará as seguintes quatro áreas: 1. Tipo teórico de confiança e alocação do risco adequado em projetos de PPPs: analisamos a investigação realizada na alocação do risco nas perspetivas da tecnologia, organização e contrato. Com base nos tipos de confiança existentes na literatura, analisamos de que forma a confiança se adequa à alocação do risco. 2. A nossa pesquisa combina métodos qualitativos e quantitativos. Considerando que a confiança envolve cenários de dependência e de risco moral e que, em projetos PPPs, a fiabilidade dos dados é um problema para a investigação da variável confiança utilizámos um método qualitativo - a discussão em grupo - como método de aferição desta variável. 3. Com base numa análise exploratória e utilizando o modelo da teoria fundamentada investigámos a construção da “confiança, alocação de risco adequado e compensação derivada de mudanças contratuais”. Considerando a lacuna existente na literatura no que concerne à relação entre confiança e alocação de risco, realizamos uma análise exploratória com base na teoria fundamentada (grounded theory) relevando as questões relacionadas com o capital social. 4. Análise empírica com base em questionários: utilizando escalas de confiança e escalas de alocação de risco já existentes, testamos hipóteses através da recolha de dados provenientes de questionários. Com os questionários pretendemos estudar a relação entre a alocação de risco adequado e a compensação devido a mudanças contratuais

Research Frontiers in the Economics of Climate Change

Academic and policy debates over climate change risks and policies have stimulated economic research in a variety of fields. In this article I briefly discuss eight overlapping areas of current research in which further effort particularly is warranted. These areas include decision criteria for policy; risk assessment and adaptation; uncertainty and learning; abatement cost and the innovation and diffusion of technology; and the credibility of policies and international agreements. Further analysis in these areas not only will advance academic understanding but also will provide insights of considerable importance to policymakers.