Credible Commitments: Credible Commitments

Credible commitments and credible threats share this common attribute: Both appear mainly in conjunction with irreversible, specialized investments. But whereas credible commitments are undertaken in support of alliances and to promote exchange, credible threats appear in the context of conflict and rivalry.63 The former involve reciprocal acts designed to safeguard a rela- tionship, while

Credible Commitments: The Hostage Model

The simple hostage model serves to illuminate both unilateral and bilateral exchange, permits the concept of specific capital to be extended beyond earlier uses, and clarifies how costs should be described in assessing exchange. While it is primitive and suggestive, rather than refined and definitive, it serves as a paradigmatic wedge by which the

Credible Commitments: Engaging the Supplier

Suppliers are passive instruments in this model. They are indifferent among contracts, since their expected profits are the same (zero) whichever choice the buyer makes. What drives the argument is that buyers can secure better terms only by relieving producers of demand cancellation losses. Buyers cannot have their cake (product supplied by the efficient

Credible Commitments: Unilateral Trading Applications

The technologies and contractual options discussed above are displayed sche- matically in Figure 7-2. If pˆ < p1 < p¯, then the relevant nodes are A and C: e uyer will either ask the supplier to employ the general purpose techno ogy an will pay p, upon delivery of product for which orders are’con- lrme

Credible Commitments: Schwinn

Although issues posed in Schwinn are not precisely the same as the franchise matters discussed above, they are nevertheless closely related. Inasmuch as this case displays pretransaction cost type reasoning, it is instructive to consider the government’s arguments against the franchise restrictions employed by Schwinn and then to consider an alternative construction. 1. The

Credible Commitments: Reciprocity

1. General Reciprocity transforms a unilateral supply relation where A sells X to B into a bilateral one, whereby A agrees to buy Y from B as a condition for making the sale of X and both parties understand that the transaction will be continued only if reciprocity is observed. The resulting contractual relation

Credible Commitments: The Hostage Model Extended

Assume that the two firms are engaged in tied bilateral trade and that both have made specific asset investments of k in support of each other. Assume further that each firm incurs redeployable costs of production of v2 and that pˆ is the price at which product is traded. In deciding whether to take

Credible Commitments: Petroleum Exchanges

“The task of linking concepts with observations demands a great deal of detailed knowledge of the realities of economic life” (Koopmans, 1957, p. 145). The phenomenon of petroleum exchanges has puzzled economists for a very long time. It routinely comes up in antitrust cases and investigations. The 1973 case brought by the United States

Credible Commitments: Concluding Remarks

These two chapters on credible commitments maintain and develop the viewpoint that private ordering is widely used to govern complex contractual relations. It thus takes issue with the legal centralism tradition. Rather than employ a legal rules approach to contract, the concept of contract as framework is emphasized instead. Disputes are not therefore routinely

The Organization of Work: The Radical Account of Hierarchy

The Radical account of hierarchy comes down to this: (1) All legitimate efficiency purposes of organization can be discerned by reference to the neoclassical theory of the firm; (2) neoclassical theory makes no provision for hierarchy; accordingly (3) the alternative hypothesis—namely, that hierarchy operates in the service of power—wins. Original contributions by Stephen Marglin

The Organization of Work: Transaction Cost Aspects

Recall that two branches of transaction cost economics are distinguished in the cognitive map of contract set out in Chapter 2: a governance branch, where the concern is with adaptive, sequential decision-making, and a measurement branch, where the problems are attributable to information impact- edness. To be sure, the two conditions are commonly joined

The Organization of Work: A Comparative Institutional Framework

1. Assumptions  Marglin contends that the nonexperimental naturelof the social sciences con- tributes to the continuing neglect of internal organization. Were that not the case, alternative inodes of organization, including egalitarian work modes, would be designed and tested experimentally (Marglin, 1974, pp. 33-34). While I agree that experimental testing of that kind has great

The Organization of Work: A Comparative Institutional Assessment

The issue to be addressed here is: Socioeconomic attributes of tb“ enterprise aside, do alternative work modes differ systematically in efficiency respects? A set of simple efficiency criteria is proposed first. Crude rankings of work modes with respect to those criteria are then attempted. 1. Simple Efficiency Criteria  None of the eleven efficiency measures

The Organization of Work: Power Versus Efficiency

The argument that successive modes of organization represent efficiency ad- vances on earlier modes proses for the radical economics literature a dilemma that was apparent even in Karl Marx. I review some of the consequent tensions here. 1. Origins of the Division of Labor Early in his chapter on the division of labor and manufacture,

The Organization of Work: Concluding Remarks

Victor Goldberg observes that “conflict and struggle are . . . fundamental elements of the radical’s world view, and it is, therefore, quite natural for issues of power to surface in their analyses.” He further holds that the “lesson the nonradicals should draw from the radical account is to take issues of power seriously”

The Organization of Labor: Central Issues

A central thesis of this book is that a common theory of contract applies to transactions of all types—labor market transactions included. The organization of labor is nevertheless a very complicated matter. No single approach to the study of labor organization is at present adequate—which is to say that the study of these matters

The Organization of Labor: An Abstract Approach

Although it is sometimes argued that there is a single preferred way by which to organize labor, casual inspection discloses that labor organization is highly varied. An explanation for the differences would plainly add to our under- standing. The transaction cost approach rests on the proposition that governance Structures for labor must be matched

The Organization of Labor: Union Organization

Unions are complex organizations, have many facets, and serve many purposes. Efficiency aspects are mainly emphasized here. They are examined from the standpoint of private ordering. Other aspects, however, are also considered, including a discussion of power. 1. Private Ordering  Katherine Stone has recently examined the development of American labor law in the period

The Organization of Labor: Problematic Features of Union Organization

The foregoing emphasizes the beneftts of eollective organization. They are especially great in circumstances where the labor force acquires (or the man- agement wishes to induce the workers to acquire) firm-specific human capital. But there are additional efficiency benefits, of a simple agency kind, that collective organization can provide in virtually all enterprises. Unions

The Organization of Labor: The Producer Cooperative Dilemma

This book is mainly preoccupied with assessing capitalist modes of organiza- tion. Although the underlying approach to the study of organization applies to noncapitalist modes as well, few such application are attempted. The following brief discussion of producer cooperatives is mo remedy. It merely poses issues for which further study is needed. The basic