Thursday, September 22, 2016

Papers for Class Projects

1. Ronald Coase - The Nature of the Firm
This is where the subject matter all started.  Coase, who won the Nobel prize for Economics though he actually was a Law professor at the University of Chicago, asks a very elemental question.  Why are there firms?  Whey don't all transactions happen within markets?  '

2. Oliver Williamson - Transaction Cost Economics: An Introduction
Williamson is another Nobel Prize winner and the person who took the baton from Coase and advanced the field.  He is most known for his work on governance of contracts and this paper gives a nice overview of how that works and helps to keep transaction costs under control.

3. Alchian and  Demsetz - Production, Information Costs, and Economic Organization
This paper gives an answer to the question of why there are firms - team production.  It also explains why the owner/entrepreneur should be the manager of the other team members  as well as the residual claimant on the profit the firm generates.  It offers a very good theory of the capitalism of small businesses.

4. Alfred Chandler - Organizational Capabilities and the Economic History of the Industrial Enterprise
While we have been emphasizing transaction costs in class, this paper takes a comparative view of various possible explanations of the firm and notes that the evidence doesn't really favor the transactions cost approach.  It is interesting to see the implications of the different approaches when contrasted side by side.

5. Klein, Crawford, and Alchian - Vertical Integration, Appropriable Rents, and the Competitive Contracting Process
This is the most famous paper on the holdup problem.  It gives a very general description of the issue and then uses some historical examples to illustrate.  One of those examples we will discuss in class, the case of Fisher Body and General Motors.

6. Arthur Okun - The Invisible Handshake and the Inflationary Process
NOTE: This paper is freely available to you if either (1) you are on the campus network or (2) you use VPN (TunnelAll) when you are on the commercial Internet.  Otherwise you see it costs $45 to download.  Don't pay that.
This paper offers an excellent discussion of implicit contracts (the invisible handshake) and explains how they govern the employment relationship.  It then talks about the macroeconomic implications of such implicit contracts and, in particular, explains why inflation was persistent in the late 1970s long after the sources that caused the inflation had been removed.

7. Gompers and Lerner - The Venture Capital Revolution
Normal capital markets require collateral from the borrower to secure a loan.  This requirement is no big deal for established firms but it is an effective block for startups who are then constrained financially.  While most startups fail, some succeed fabulously.  There is then reason to have a market for high risk/high reward capital investment.  While we won't otherwise spend much time talking about finance issues in the class, this particular type of firm should be considered, and separately from the way we consider other firms that produce goods or services.

8. Richard Freeman - When Workers Share in the Profits
Shared capitalism has been touted as a solution to (1) address the employee moral hazard problem and (2) address income inequality.  This paper gives an overview of the various possible ways for shared capitalism to manifest and then offers up a critique of the effectiveness of the various approaches.

9. Akerlof and Kranton - Identity and the Economics of Organizations
As we have tried to stress in the class, there are limits to how much cash incentives can accomplish and indeed those incentives may have pernicious consequences.  This paper looks at alternative ways to motivate employees - via Identity, clearly not a pure economics concept but surely an interesting one.  This paper represents another of those that meld economics with other social sciences, which really is the direction the discipline should be taking.

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