An Influence-Cost Model of Organizational Practices and Firm Boundaries
Journal of Law, Economics, and Organization, 2015, vol. 31, issue suppl_1, i104-i142
This paper combines Milgrom and Roberts’s influence-activity paradigm with the alienable control-rights approach of the Property Rights Theory to develop a unified theory of organizational practices and firm boundaries. Business relationships are optimally organized to curtail influence activities—costly activities aimed at persuading decision makers. Sometimes, rigid organizational practices that reduce ex post decision-making quality may be adopted if they reduce managers’ incentives to engage in influence activities. Unifying control (integration) may improve ex post decision making, but it intensifies disempowered managers’ returns to influence activities unless accompanied with rigid organizational practices. Interpreting influence costs under non-integration as "haggling costs" between firms and rigid organizational practices under integration as "bureaucracy". this model provides a unified account of the costs of both markets and hierarchies that accords with Williamson’s classic trade-off. Under this view, however, bureaucracy within firms is not a cost of integration, but rather an endogenous response to influence activities. (JEL D02, D23, D73, D83.)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12) Track citations by RSS feed
Downloads: (external link)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:oup:jleorg:v:31:y:2015:i:suppl_1:p:i104-i142.
Ordering information: This journal article can be ordered from
Access Statistics for this article
Journal of Law, Economics, and Organization is currently edited by Pablo T. Spiller
More articles in Journal of Law, Economics, and Organization from Oxford University Press Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK.
Bibliographic data for series maintained by Oxford University Press ().