Public Markets, Private Orderings and Corporate Governance

Ugo Pagano

Working Papers from Centre for Business Research, University of Cambridge

Abstract: In the New Property Rights approach the degree of incompleteness of markets is taken independently of the cost of the public ordering and of their efficiency relatively to private orderings. In this approach "public markets", similarly to a Swiss cheese, are either assumed to be non-existent empty holes (because of infinite third party verification costs) or assumed to be smooth and efficient (because of zero third party verification costs). When we allow for positive but not infinite third party verification costs we are necessarily pushed back to the insights of Commons, Coase, Fuller and Williamson. The degree of (in) completeness of public markets becomes an endogenous economic problem and managers can be seen as agents that make "second order" specific investments to run specific relations that cannot be efficiently run by public markets. Managers and the public authorities build respectively private and public "legal equilibria" that set the working rules within which transactions can take place. Private and public legal equilibria are not only substitutes but also complements. This complementarity is an important source of the path dependency that characterises the development of different legal systems. The framework is applied to GM's acquisition of Fisher Body. We claim that, contrary to the claims of the New Property Rights approach, the advantages of the acquisition cannot be due to the incentives of private property but should be rather related to the replacement of public markets by the new private ordering set up by Alfred Sloan.

Keywords: public markets; private orderings (search for similar items in EconPapers)
JEL-codes: D23 K00 K10 L22 P51 (search for similar items in EconPapers)
Date: 2000-06
New Economics Papers: this item is included in nep-cfn, nep-fin, nep-law and nep-reg
Note: PRO-2
References: Add references at CitEc
Citations: View citations in EconPapers (17)

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Journal Article: Public markets, private orderings and corporate governance (2000)
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