THE 3 Rs OF STRATEGIC ALLIANCE FORMATION: RESOURCES, RENTS, AND (PROPERTY) RIGHTS

This paper examines the formation and governance of strategic alliances. In particular, the problem is defined for the development of alliances in agriculture, where new organizational forms are arising rapidly for horizontal and vertical coordination of the production-marketing chain. As the title of this research conference implies, these organizational forms offer opportunities within the portfolio of strategies facing agricultural producers for reconfiguring their marketing and managing risks by joint/collective action. The basis for the paper is the resource-based theory (RBT) of firm strategy, which has developed over the past ten years as a way to build positive and normative models of strategic decisions. The RBT draws from industrial organization economics and organizational economics (often called neoinstitutional economics) as a way to model the sources and robustness of sustainable competitive advantage. This paper extends to RBT to the joint strategies of firms engaged in strategic alliances. Additionally, the analysis turns on the manner by which economic rents are earned in a strategic alliance and how they are shared by alliance partners. What rights do alliance partners have to jointly earned returns in the alliance, given its organizational form (statutory structure and governance structure), the sources of economic rents, risks associated with the rent streams, and the often intangible resources (assets) that drive the performance of the joint assets in the alliance? This discussion paper presents a brief review of the RBT model, followed by a discussion of the sources of, and durability of, economic rents that accrue to firm resources. These sections are essentially résumés of the current literature on RBT. The third section departs from the literature in explicitly considering a model of strategic alliance formation as the development of a portfolio of jointly held alliance resources that are linked to the resource portfolios of the individual alliance partners. The fourth section presents further extensions of RBT to examine the problems of ex ante and ex post division of alliance rents. One extension is the exploitation of the property rights theory of economic behavior (cf. Barzel, 1989) to explain how the economic rent streams from the resource portfolio should be shared among alliance partners, including participating financial institutions.Agribusiness,

Public Facilitation of Small Farmer Access to International Food Marketing Channels: An Empirical Analysis of the USDA Market Assistance Program in Armenia

With the continued globalization, rapid channel consolidation, increasing technology, capital, food safety and private grades and standards requirements, many small scale agricultural and horticultural producers from transitional and developing countries are rapidly becoming excluded from international agri-food marketing system. Consequently, governments and international agencies alike are reevaluating the structure, form, and delivery of their assistance programs as they search to identify new delivery mechanisms that can overcome the weaknesses that their traditional programs face within this new business environment. Their challenge is to design programs that facilitate the establishment of economically viable and sustainable market relationships and business models between small-scale producers and the international food marketing system that provide these financially distress producers access to the technological know-how, market knowledge and access, and financial and productive resources required to successively compete. Recent Central and Eastern European (CEE) experiences indicate that foreign direct investment and the entry of multinational firms have successfully facilitated small farmers access to international marketing channels. By entering markets with sufficient capital to ensure contract enforcement and support investment, multinational firms can overcome the pervasive hold-up and underinvestment problems plaguing the sector thereby stimulating investment and growth in agricultural production (Gow & Swinnen, 1998; 2001; Walkenhorst, 2000; Dries & Swinnen, 2004). For numerous reasons access to sufficient foreign direct investment or multinational firms may not be an option for many countries. The obvious question therefore becomes, can an alternative third-party facilitation mechanism for stimulating agriculture be identified apart from the private solutions found in Central and East Europe? Glover and Kusterer (1990), Porter and Philips-Howard (1997), Coulter et al (1999), Eaton and Shepherd (2001), and Simmons (2001) allude to the benefits of public agencies in facilitating firm farmer relationships. However as of now the literature has not identified nor extracted the critical processes and factors required in the design, development and establishment of long-run economically viable and sustainable business models that facilitate small producers' access to international food markets. In this research we develop a theoretical model explaining the critical processes and factors involved in the public facilitation of the establishment of economically sustainable marketing relationships between small producers and agroprocessors in the presence of financial distress and absence of effective enforcement mechanisms. The USDA Market Assistance Program (MAP) in Armenia is used to empirically test the theoretical model as it provides a natural experiment. Aremina's recovery is similar to those observed in other CEE countries; however Armenia's agricultural sector has not experienced the recovery found elsewhere. A key constraining factor has been the lack of foreign direct investment initiated solutions so successfully employed elsewhere (World Bank, 1999; 2002). Without the presence of private solutions that can create self-enforcing relationships and encourage relationship specific investment, the Armenian agricultural sector has remained in a sub optimal equilibrium characterized by deep financial distress and a general lack of investment. The only sub-sectors that have seen growth any growth have had MAP facilitation support. Thus what is unique is that the MAP project appears to provide a public solution rather than a private solution to the problem, as in all the previous research (Gow & Swinnen, 1998; 2001; Foster, 1999; Gow et al, 2000; Walkenhorst, 2000; Dries & Swinnen, 2004; Cocks & Gow, 2003). In order to examine the phenomena of establishment and development of sustainable inter-organizational marketing relationships within the context of Armenian agriculture, the USDA MAP project, and the goat industry, we have used mixed methodological approach combining qualitative and quantitative data collection. Approximately 100 semi-structured interviews were conducted with farmers, industry representatives, local experts, and USDA MAP personnel. In additional, an extensive enumerated survey was implemented questioning 2000 farmers in five sectors over 2003 and 2004. Based upon the extensive interviews 12 different business models and facilitation processes used by the USDA MAP were identified and a suitable stratified survey frame was designed to test the differences between these models. The theoretical model and empirical results indicate that the third party public facilitator, USDA MAP, is critical in facilitating the initial development of the channel and identifying a value proposition in a downstream market. However, economic sustainability requires that the public agency remain an arms-length third party facilitator, rather than being the leader in the development of the channel and thus an integral cog in the channel. The actual development of the marketing channel should be led by an entrepreneur who possesses both the ability to develop the marketing channel and who is trusted by the local community. By leading the development of the channel the private enforcement capital that is created through the development of the channel is created between the entrepreneur and the farmers. Over time this widens the self enforcing range of the relationship, therefore allowing greater shifts in market conditions and decreasing the risk of opportunistic behavior (Gow et al, 2000). By holding the trust and respect of the community the entrepreneur inherently holds private enforcement capital with the rest of the community equivalent to the present value of their reputation or trust individually and collectively with the community (Oliver & Gow, 2002). Additionally, the expectation of a value proposition of a downstream market creates the expectation of private enforcement capital between farmers the entrepreneur through the present value of future returns that the entrepreneur could earn from the value proposition (Gow et al, 2000). Thus the combination of the present value of the entrepreneur's reputation with the farmers in the short term combined with the longer term expectation of future returns through the value proposition and creates sufficient private enforcement capital for the immediate development of a self-enforcing relationship with the farmers.International Relations/Trade,

A COEVOLUTIONARY APPROACH TO UNDERSTANDING THE PARADOX OF SOCIAL PRESSURES VERSUS ECONOMIC EFFICIENCY ACROSS THE WORLD'S FOOD CHAINS

Institutional and Behavioral Economics,

A TRANSACTION COST ECONOMICS AND PROPERTY RIGHTS THEORY APPROACH TO FARMLAND LEASE PREFERENCES

Numerous theoretical approaches to farmland leasing contract choice have been developed with little consistent empirical support, particularly for the Corn Belt. A unique theoretical approach to explaining farmers' lease preferences is presented, using a combination of transaction cost economics and property rights theory. Results demonstrate that both transactional and certain producer characteristics are important motivators of contract choice.Land Economics/Use,

PRICE DISCOVERY MECHANISMS AND ALTERNATIVES FOR CANADIAN AGRICULTURE; Part I: A Review of Pricing Mechanisms in Agriculture

The purpose of this section is to review pricing mechanisms in agriculture and food. We started by constructing a taxonomy and system of classification for pricing mechanisms that is rooted in economic theory. This framework was applied to 26 pricing mechanisms observed from the following product categories: · Beef · Hogs · Grains and oilseeds · Dairy · Poultry and Eggs · Processed Food and HorticultureDemand and Price Analysis,

THE 3 Rs OF STRATEGIC ALLIANCE FORMATION: RESOURCES, RENTS, AND (PROPERTY) RIGHTS

This paper examines the formation and governance of strategic alliances. In particular, the problem is defined for the development of alliances in agriculture, where new organizational forms are arising rapidly for horizontal and vertical coordination of the production-marketing chain. As the title of this research conference implies, these organizational forms offer opportunities within the portfolio of strategies facing agricultural producers for reconfiguring their marketing and managing risks by joint/collective action. The basis for the paper is the resource-based theory (RBT) of firm strategy, which has developed over the past ten years as a way to build positive and normative models of strategic decisions. The RBT draws from industrial organization economics and organizational economics (often called neoinstitutional economics) as a way to model the sources and robustness of sustainable competitive advantage. This paper extends to RBT to the joint strategies of firms engaged in strategic alliances. Additionally, the analysis turns on the manner by which economic rents are earned in a strategic alliance and how they are shared by alliance partners. What rights do alliance partners have to jointly earned returns in the alliance, given its organizational form (statutory structure and governance structure), the sources of economic rents, risks associated with the rent streams, and the often intangible resources (assets) that drive the performance of the joint assets in the alliance? This discussion paper presents a brief review of the RBT model, followed by a discussion of the sources of, and durability of, economic rents that accrue to firm resources. These sections are essentially résumés of the current literature on RBT. The third section departs from the literature in explicitly considering a model of strategic alliance formation as the development of a portfolio of jointly held alliance resources that are linked to the resource portfolios of the individual alliance partners. The fourth section presents further extensions of RBT to examine the problems of ex ante and ex post division of alliance rents. One extension is the exploitation of the property rights theory of economic behavior (cf. Barzel, 1989) to explain how the economic rent streams from the resource portfolio should be shared among alliance partners, including participating financial institutions