Stabsseminar ved Bengt Holmström

Professor Bengt Holmström fra Massachusetts Institute of Technology holder stabsseminar ved Institutt for foretaksøkonomi torsdag 2. mai.

30.04.2002 - Elin F. Styve

Tema er Vision and Firm Scope.

Tid og sted:
Torsdag 2. mai kl. 1215-1330 i Karl Borchs aud.

Papirversjon av paper vil kunne hentes hos Turid Gabrielsen (rom 711) på torsdag.

Abstract
The existing literature on firms, based on incomplete contracts and property rights, emphasizes that the ownership of assets--and thereby firm boundaries-- is determined in such a way as to encourage relationship-specific investments by the appropriate parties. It is generally accepted that this approach describes owner-managed firms better than large companies. The purpose of the current paper is to broaden the scope of the property rights literature. A model is developed that emphasizes that (a) firm bosses take non-contractible decisions; (b) these decisions affect the utilities of firm workers, which in turn affects worker wages and hence firm profits; (c) the decisions of bosses will depend on bosses' preferences, and different bosses will typically have different preferences (moreover, their preferences may depend on the scope of the firm they run). The implication of these assumptions is that firm boundaries matter: a merger between two firms will not be neutral since the new boss will not have--and in general cannot have--the same preferences as the two previous bosses. We use the model to study the optimal scope of a firm, and the optimal assignment of different types of bosses to different types of firms and activities. We show that this framework can be used to analyze the optimal delegation of authority inside a firm--the idea is that certain decisions should be put in the hands of someone with different preferences from the boss. We apply our analysis to understand two kinds of non-contractible decisions: the adoption of standards and the decision to specialize.