Property Rights Theory

In the property rights theory, property rights are basic human rights, grounded in current Human Rights law as found in article 17 of The Universal Declaration of Human Rights and theoretical constructs in economics for determining how a resource or economic good is used and owned. This idea of ownership must be constrained from the views of absolute

The economic theory of organizations: what it is

The economic theory of organizations as a field of study includes (1) the theory and policy of industrial organization; (2) the theory of the firm; (3) the theory of contracts; and (4) extension of these to theories of markets, governments, and nonprofit organizations. I briefly review the first three of these on the way to

The economic theory of organizations: what it isn’t

The economic theory of organizations, as any field, is subject to limita- tions. First, at its present stage of development, the economic theory of organizations is less a theory of organizations than it is a theory of the firm. Second, the economic theory of organizations includes analysis of decisions. However, in this area the

Efficient Decisions in Organizations: Efficiency criteria

In the economic analysis of organizations, managerial decisions in an organization are efficient when these decisions maximize net benefits to the organization (that is, net private benefits). These privately efficient decisions are said to be socially efficient when they also maximize net benefits to society (that is, net social benefits). In the typical analysis

Efficient Decisions in Organizations: Evaluation of assumptions

Although the model of economically efficient markets is  flexible enough to predict decision outcomes in alternative organizational forms under the restrictive conditions stated above, it is clearly limited in a number of significant ways. First, as formulated, the model cannot distinguish between the market and specific organizations that operate within the exchange market. The

Efficient Decisions in Organizations: Bounded rationality

The assumption of unbounded rationality in the model of efficient mar- kets is important enough to warrant a separate discussion. Unbounded rationality requires that all decision makers are fully informed and are able to fully process all relevant information so as to optimize their respective positions. They know their options and also the options

Efficient Decisions in Organizations: Organizations as social constructs

For-profit  corporations,  public  bureaus,  and  nonprofit  organizations are complex and bureaucratic organizations as defined by Thompson (1961, p. 8): ‘Organization theory attempts to account for order in behavior. A bureaucratic organization is a structure composed of authority, status,  technical,  and  social  relationships.’  An  organization is not only a construct of efficiency; it is also 

Theory of property rights

The theory of property rights has three parts. First, the concept of a property right is defined. Second, alternative systems of property rights are delineated. Third, the assignment of rights under different property rights systems is examined for the implications for efficiency of resource use. In the theory of property rights, the definition of

Property rights and incentives in organizations

Property rights systems are clearly important to decisions of individu- als and of organizations concerning investment in and exchange of resources. Property rights that include the right to control a resource and the right to obtain the return from a resource provide a basis for efficient use of resources when the holder of the

Property rights and the firm: the issue of separation of ownership and control

Theories of the firm  based  on  property  rights  have  been  the  focus of much research in the economics  of  organization,  both  explicitly and implicitly. These theoretical interpretations of the firm are varied, however. The explicit concerns primarily examined in this literature are transactions costs, contractual relationships in general, and the principal–agent relationship in particular.

Unbounded rationality, property rights, and managerial decision making

These developments provide support for managerial theories such as the theories that follow Williamson (1963) which assume that managers have their own objective of utility maximization, subject to a minimum profit constraint that will satisfy shareholders.  In  Williamson’s  model this is the reported profit level (πR). If πR is acceptable to shareholders, then πR

Bounded rationality, property rights, and managerial decision making

Separation of ownership and control is inherent in the corporate orga- nizational form. This situation exists even in the face of limitations on the abilities of owners (shareholders) and those in control (managers) to process information and articulate and achieve their respective goals. The property rights model and the transactions cost, contracts, and principal–agent

Property rights, incentives, and managerial decision making

Separation of ownership and control means that resource investment decisions in corporations are not made by the holders of capital. The effect of this is that the corporate market is no longer efficient. Traditionally, solutions to the principal–agent problem that is inherent in the separation issue have been proposals to redesign contracts and organizational

Property rights in the public sector

As with theories of the firm, many theories of public sector organiza- tions have been based on property rights, either explicitly or implicitly. These theories tend to examine the concept of authority rather than ownership. Although authority and ownership are not the same, they are related. Whereas ownership implies a legal right of possession,

Property rights and the bureau: the issue of separation of ownership and control

The nature of property rights in the public sector just discussed suggests a separation of ownership and control along the lines of that in the for- profit corporation, with some important differences. Full ownership of a resource includes both residual rights and control rights. The complex structure of the for-profit corporate form of organization

Managerial decision making in the public sector

1. Unbounded rationality Decision behavior of legislators has been modeled by Weingast, Shepsle and Johnsen (1981). Their model assumes utility maximizing legisla- tors and distinguishes political efficiency from economic efficiency by explicitly considering specific political benefit and political cost func- tions. The outcome of their model shows that the politically efficient amount of output exceeds

Property rights in the nonprofit sector

The spectrum of nonprofit organizations incorporate certain character- istics of business (for-profit) organizations and of government (public) organizations, but have their own unique character apart from either of these two. Accordingly, theories of nonprofits derive from multiple fields: economics, political science, history, sociology, and organization theory. Some of the theories from across fields address

Property rights and the nonprofit organization: the issue of separation of ownership and control

The nondistribution constraint is an important part of the legal definition of a nonprofit organization. It is an important economic characteristic as well. This legal requirement, whereby no residual claim may be made by any individual or group associated with the nonprofit organization, is interpreted in economic analyses to define a nonprofit as an

Managerial decision making in nonprofit organizations

1. Unbounded rationality Economic analysis of nonprofit organizations primarily assumes unbounded rationality. That is, the models employ optimization tech- niques that propose a specific objective (such as maximizing revenue, budget, or quality of service) and develop implications for nonprofit outcome (typically output, inputs, cost and/or quality levels). These models generally show that nonprofit organizations

Unbounded rational decision making: neoclassical models of alternative organizational behavior

The neoclassical view of organizations, regardless of organizational form, is essentially one of a production function with no attention to internal organizational structure. To summarize, there is a single focused objec- tive function for the organization as a whole. The decision process is an organizational response to exogenous factors that serve as constraints and