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- A classic on the theory of the firm
- Abstract Theory at its ugliest
- THE Classic
- A THEORY of the firm
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Firms, Contracts, and Financial Structure (Clarendon Lectures in Economics)
Oliver Hart
Manufacturer: Oxford University Press, USA
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Contract Theory
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The Economics of Contracts: A Primer, 2nd Edition
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ASIN: 0198288816 |
Book Description
This book provides a framework for thinking about economic instiutions such as firms. The basic idea is that institutions arise in situations where people write incomplete contracts and where the allocation of power or control is therefore important. Power and control are not standard concepts in economic theory. The book begins by pointing out that traditional approaches cannot explain on the one hand why all transactions do not take place in one huge firm and on the other hand why firms matter at all. An incomplete contracting or property rights approach is then developed. It is argued that this approach can throw light on the boundaries of firms and on the meaning of asset ownership. In the remainder of the book, incomplete contacting ideas are applied to understand firms' financial decisions, in particular, the nature of debt and equity (why equity has votes and creditors have foreclosure rights); the capital structure decisions of public companies; optimal bankruptcy procedure; and the allocation of voting rights across a company's shares. The book is written in a fairly non-technical style and includes many examples. It is aimed at advanced undergraduate and graduate students, academic and business economists, and lawyers as well as those with an interest in corporate finance, privatization and regulation, and transitional issues in Eastern Europe, the former Soviet Union, and China. Little background knowledge is required, since the concepts are developed as the book progresses and the existing literature is fully reviewed.
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A classic on the theory of the firm.......2003-12-04
Consider an economic relationship where relationship-specific investments are important and transaction costs make it impossible to write a comprehensive long-term contract to govern the terms of the relationship. Consider also the nonhuman assets that, in the post-investment stage, make up this relationship. Given that the initial contract has gaps, missing provisions, or ambiguities, situations will occur in which some aspects of the use of these assets are not specified. Take the position that the right to choose these missing aspects of usage resides with the 'owner' of the asset. That is, ownership of an asset goes together with the possession of residual rights of control over that asset; the owner has the right to use the asset in any way not inconsistent with a prior contract, custom, or any law. Finally, identify a firm with all the nonhuman assets that belong to it, assets that the firms's owners possess by virtue of being owners of the firm. Included in this category are machines, inventories, buildings or locations, cash, client lists, patents, copyrights, and the rights and obligations embodied on outstanding contract to the extent that these are also transferred with ownership. Human assets, however, are not included. Since human assets cannot be bought or sold, management and workers presumably own their own human capital.
We now have the basic ingredients of a theory of the firm. This theory has become known as the property rights approach to the theory of the firm. In a world of transaction costs and incomplete contracts, ex post residual rights of control will be important because, through their influence on asset usage, they will affect ex post bargaining power and the division of ex post surplus in a relationship. This division in turn will affect the incentives of actors to invest in that relationship. Hence, when contracts are incomplete, the boundaries of firms matter in that these boundaries determine who owns and controls which assets. In particular, a merger of two firms does not yield unambiguous benefits: to the extent that the (owner-)manager of the acquired firm loses control rights, his incentive to invest in the relationship will decrease. In addition, the shift in control may lower the investment incentives of workers in the acquired firm. In some cases these reductions in investment will be sufficiently great that non integration is preferable to integration.
Note that, according to this theory, when assessing the effects of integration, one must know not only the characteristics of the merging firms, but also who will own the merged company. If firms A and B integrate and A becomes the owner of the merged company, then A will presumably control the residual rights in the new firm. A can use those rights to hold up the managers and workers of firm B. Should the situation be reversed, a different set of control relations would result in B exercising control over A, and A's workers and managers would be liable to holdups by B.
Hart's book gives us an introduction to this world of the property rights approach to the theory of the firm. In the first part Hart considers the traditional approaches to the firm and argues that these approaches can not explain why all production does not take place within one firm or even why firms matter at all. His answers to these problems are developed via the property rights approach to the firm. Development of this theory covers chapters 2-4. Chapter 2 outlines the property rights approach, chapter 3 looks at issues that arise from this approach and chapter 4 discusses the foundations of the incomplete contracting model. In part 2 of the book Hart considers the financial structure of firms. The nature of debt and equity, the capital structure decisions of public firms, bankruptcy procedures are all covered. The book is written in a very readable manner and is non-technical enough to mean that both (advanced) undergraduate and graduate students will be able to read it. For anyone with a interest in the theory of the firm this is a must read.
Abstract Theory at its ugliest.......2000-04-21
I had the unfortunate dislpeasure of having to read this as one of the required books for a PhD class in Managerial/Business Economics. Suffice to say...the book is a complete waste of time and not worth the trees it took to print it. I understand Hart is brilliant...teaches at Oxford & Harvard...receives full salary at both...he's tops in his field. Yet, what this book contains has absolutely nothing to do with reality. It is abstract theory at its finest...or rather, worst! PhD work is theoretical...that's a given. But this book is still worthless, even for someone like myself studying for my PhD in Business Economics. You learn nothing about corporations, business practices or strategy, finance...etc. What is the point to studying this theory of financial structure that is so far removed from reality that you finish the semester wondering..."gee, what have I actually learned in the last four months". If your aim is for applied work, your likely answer will be NOTHING. Even though the mathematics used are fairly basic,the book is very difficult to read. Turning the pages is a very slow process. You learn nothing about the workings of real world finance by reading through this intellectuals collection of useless writings. I'm sure it boosted his ego, but it does nothing for the business student to understand the reasons for different choices of capital structure. Your time would be much better spent reviewing the chapters in Brealy and Meyers on capital structure, or Damodoran's book on Corporate Finance: Theory & Practice.(now that is a good book). If you want to learn about the nature of contracts WITHIN firms and how they are used to accomplish managerial objectives and provide proper incentives where needed, read Milgrom & Roberts or any good book on Managerial Economics. Even for Phd students in Finance, this book is a waste of your time!
THE Classic.......2000-04-21
This book is regarded as THE classic by most professional economists. We can't talk about the theory of the firm without referring to this book, which is written with exceptional clarity and depth.
A THEORY of the firm.......2000-03-26
This book presents a theory of the firm. It is targeted for graduate students in Economics. It is a must have if you plan to research in this field and it is remarkably clear! The mathematics is incredibly easy compared to other 2nd year Econ PhD books. I think even undergraduates usually know enough Math to go through the main chapters.
The book is purely theoretical and only very abstract-minded people will like it. If your specialization is applied I.O. you still might want to read the book for background knowledge, but I doubt it will be of much use to you (no econometrics here, and very little econometrics to be done even if you wanted to)
On the other hand, it is probably not going to be of any use to you if you are not a graduate student in Economics. It is *far* too abstract for management.
Now briefly to the content:
The first chapter reviews previous approaches to the theory of the firm (transaction costs...)
Property right approach and incomplete contract approach are the main point of the book. The role and the boundary of the firm are explained using concepts such as "property rights", "residual power of control", "specific investments".
The second part of the book is mainly about financial structure. Of the second part, I studied only the last chapter on voting rights. It explains how the voting structure should be set up (how many votes per share, how many classes of shares, majority voting...) according to expected private benefits of control by the incumbent management and the management making the tender offer.
So why only two stars? The theories presented here seem to me less satisfactory than many others in Economics.
I think there are fields in Economics that convey the right intuition. Hart's book does not give that impression to me. Unfortunately, I don't have anything better to propose otherwise my dissertation would be done.
Book Description
Lecture Notes in Microeconomic Theory is the first publication of Ariel Rubinstein's lecture notes from the first part of his well-known course in microeconomic theory, which he has taught for fifteen years to first-year graduate students at Tel Aviv, Princeton, and New York universities. The book will be an invaluable supplement to primary textbooks in microeconomic theory. Conveying the style and method of Rubinstein's lectures, it will benefit teachers and research economists as well as students. The book focuses on and provides a critical assessment of models of rational economic agents, and it contains a large number of original problems.
Rubinstein, one of the world's most-respected economics theorists, has made substantial contributions to several fields in economics, particularly game theory. His work is characterized by an unusual combination of deep originality and surprising simplicity. He is probably best known for his contributions to the bargaining problem and, more recently, to bounded rationality.
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Long Waves of Capitalist Development: A Marxist Interpretation : Based on the Marshall Lectures Given at the University of Cambridge
Ernest Mandel
Manufacturer: Verso
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ASIN: 185984037X |
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First published in 1973, this book presents a systematic treatment of the conceptual framework as well as the practical problems of measurement of inequality. Alternative approaches are evaluated in terms of their philosophical assumptions, economic content, and statistical requirements. In a new introduction, Amartya Sen, jointly with James Foster, critically surveys the literature that followed the r s1ication of this book, and also evaluates the main analytical issues in the appraisal of economic inequality and poverty.
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The standard source on economic inequality.......2006-02-17
Despite the fact that the discipline of economic inequality measurement is thriving in the last twenty or so years (may be thirty something if you count from Atkinson (1970) paper), the textbook format publications of the general character are rare; I can only think of Lambert (2002) as another major source. Amartya Sen is a Nobel prize winner in the area of inequality, poverty and famines; and James Foster who wrote an extensive commentary featured in this second edition of the original Sen's lectures is arguably the most often cited author in inequality and poverty measurement due to his principal contributions on the classes of decomposable measures and poverty orderings.
It should be noted that Sen is kinda difficult reading; his language is a little bit archaic, and not very typical for the modern highly mathematized economic publications (don't worry, you'll see enough abstract algebra once you start going into the details of the derivation of the properties of inequality/poverty indices...)
I don't think that the other review gives anything close to the real merit of this book, as it seems to be written by an information econometrician rather than somebody doing substantive distribution research. I would comment that generalized entropy measures are important, if not central, in the inequality measurement due to their nice properties, but are not the only measures possible. The authors rather wanted to give a big picture, and, as I said, you can get all sorts of details in the article publications they refer to.
A key to evaluating inequality.......1999-06-11
I learned a lot from Sen's and Foster's book. It is an important key to the understanding of inequality measures. Especially the welfare funcion seems to be a much better measure to describe income than the average per capita income.
I, however, have one objection. Sen is careful enough not to completely reject Theil's formula (see formula 2.11 in "On Economic Inequality"). And although Sen and James E. Foster are puzzled by the application of entropy to economics, they seemingly also feel, that it is interesting enough to be discussed.
Unfortunately though, Sen called Theil's formula not only "interesting", but also "arbitrary". Here is an example for how Sen's further comments on Theil's measure successfully inhibited other researchers to develop an understanding for entropy measures. "Sen ... describes the major flaw in T very nicely when he states that it 'is not a measure that is exactly overflowing with intuitive sense'. Why then would econometricians - or anyone else - want to use T?" This response (from a participant from Macquarie University, 1991 Conference of the Australian Association for Research in Education) is regrettable. I wish, Sen and Foster would reevaluate entropy measures and their application to the measurement of inequality.
"Intuitive" understanding of entropy is rare. (That is why confusing entropy problems with energy problems is common.) The major flaw in evaluating entropy measures often is lack of common knowledge in physics as well as lack of intuition. If sociologists and economists don't trust physicists or engineers, they at least should observe how the "Shannon index" is used in statistical ecology.
As for economics, you find excellent examples for how to use Theil's measure in James K. Galbraith's "Created Unequal" (1998, ISBN 0-684-84988-7).
Book Description
An article in Fortune a few years ago identified Robert Lucas as "the intellectual leader of the rational-expectations school." An academic colleague has called Lucas "the dominant figure in American macroeconomics." And another refers to this group of 14 essays, nearly all of which were first published during the 1970s, as the most influential contribution to macroeconomics in that decade.
This volume includes: Real Wages, Employment, and Inflation (with Leonard A. Rapping); Unemployment in the Great Depression: Is there a Full Explanation? (with Leonard Rapping); Expectations and the Neutrality of Money; Econometric Testing of the Natural Rate Hypothesis; Econometric Policy Evaluation: A Critique; Some International Evidence on Output-Inflation Tradeoffs; Capacity, Overtime, and Empirical Production Function; Equilibrium Search and Unemployment (with Edward C. Prescott); An Equilibrium Model of the Business Cycle; Understanding Business Cycles; Unemployment Policy, Rules, Discretion, and the Role of the Economic Advisor a review of Towards Full Employment and Price Stability, A Report to the OECD by a Group of Independent Experts, by Paul McCracken et al.; and Methods and Problems in Business-Cycle Theory.
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Lucas simply assumes that the time series data is normally distributed.......2007-08-13
This is one of the worst books ever written by an economist.Lucas simply assumes that all markets can be represented by normal probability distributions(joint,bivariate,multivariate, or log normal).He uses his magic wand to proclaim that there is no such thing as uncertainty or,if there is,it is impossible to analyze.Lucas has never done any type or kind of goodness of fit test on the time series data he claims that his theory is representing/analyzing.It should not come as a surprise that there is no difference between the macroscopic rational expectations claim that all the distributions that decision makers use are normal distributions and Eugene Fama's earlier analysis of stock market prices.Fama discovered that the data fit the Cauchy distribution best.No matter.Fama just assumed that the distributions were normal.This is the foundation for the Efficient Market Hypothesis.I have been unable to discern any significant difference in the statistical modeling of Fama or Lucas.Everything is based on the standard deviation being THE correct measure of risk.There can be no uncertainty(Knight and Keynes) or ambiguity(Daniel Ellsberg) in the metaphysical LucasWorld or FamaWorld where all decision makers are claimed to know that all markets are modeled correctly by normal probability distributions.There is no empirical support for the Lucas claim that "...business cycles can be viewed as repeated instances of essentially similar events...'(Lucas,pp.223-224),which will then be analyzed using the standard deviation, sigma, as a measure of risk.Keynes essentially annihilated Tinbergen's similar claim that he could use the normal distribution to forecast changes in investment spending and turning points in the business cycle.The Lucas -Fama approach is a more detailed version of Milton Friedman's similar assumption that all markets can be represented as being normally distributed .The additivity property then allows Friedman,Lucas, and Fama to add the sigmas to come up with a macroscopic normal distribution.This requires that Ellsberg's rho be equal to 1 so that there is no ambiguity.
There are three recent books that would allow a reader to grasp and understand the essential nature of decision making under the uncertainty/wild risk generated in the stock and financial markets and/or the macroeconomy.Ellsberg's " Risk, Ambiguity,and Decision "(2001),Mandelbrot and Hudson's" The (Mis)Behavior of Markets "(2004), and N N Taleb's " The Black Swan
"(2007) are light years ahead of Lucas.Lucas's work was already dealt with by Keynes in the GT on p.306.Lucas simply assumes that the elasticity e has a value of 1(no uncertainty and no liquidity preference).Lucas can't even form an economic analysis if e
<1 because he has admitted that he can't provide any sort of analysis in such situations.Lucas,like Friedman,Prescott and Fama,is a great Ptolomaic economist.He can brilliantly manipulate the artificially constructed system of equations representing epicycles and eccentrics(orbits)that do not exist.Lucas manipulates the phantasms of a system that does not exist except as a mental creation of his own mind.His epicycle is the normal distribution.He piles one on top of another and adds them all up.Unfortunately,Lucas is an economist and not a scientist.Scientists ultimately must connect their theories and models to the actual existing empirical and experimental evidence .Economists ,apparently,do not.What Lucas means by " Studies " is the empty statistical and mathematical manipulation of symbols on pieces of paper that represent means,expected values,and variances(standard deviations) that do not exist in the real world.They,apparently,do exist in LucasWorld.
It would be impossible for Lucas to receive a real Nobel prize.The misnamed Nobel Memorial Prize in Economic Science contains two false statements.First,it is not a Nobel Prize.Second,economics is not a science.
Truly exceptional.......2002-02-27
The book includes articles that at this moment have become classical in economic theory. Being written by the leader of new classical economics this book helps one to enter the world of rational expectations macroeconomics.
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Collected Papers of Kenneth J. Arrow, Volume 5, Production and Capital (Collected Papers of Kenneth J. Arrow)
Kenneth J. Arrow
Manufacturer: Belknap Press
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Collected Papers of Kenneth J. Arrow, Volume 4, The Economics of Information (Collected Papers of Kenneth J. Arrow)
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Collected Papers of Kenneth J. Arrow, Volume 2, General Equilibrium (Collected Papers of Kenneth J. Arrow)
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Collected Papers of Kenneth J. Arrow, Volume 1, Social Choice and Justice (Collected Papers of Kenneth J. Arrow)
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Collected Papers of Kenneth J. Arrow, Volume 6, Applied Economics (Collected Papers of Kenneth J. Arrow)
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Collected Papers of Kenneth J. Arrow, Volume 3, Individual Choice under Certainty and Uncertainty (Collected Papers of Kenneth J. Arrow)
ASIN: 0674137779 |
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Unlike the papers of some other great economists, those of Kenneth Arrow are being read and studied today with even greater care and attention than when they first appeared in the journals. The publication of his collected papers will therefore be welcomed by economists and other social scientists and in particular by graduate students, who can draw from them the deep knowledge and the discernment in selection of scientific problems that only a master can offer. The author has added headnotes to certain well-known papers, describing how he came to write them.
The study of production is central to economic theory, and capital and its accumulation are two of the most interesting aspects of the modern production process. Capital may take the form of inventories of inputs, inventories of outputs, or machines and other fixed goods. The essential and unique aspect of all types of capital is that it must be accumulated as the result of prior stages of the production process. This gives the dynamic theory of production a recursive structure that can be exploited by economic analysis. The optimization of production under recursive conditions lends itself to general mathematical methods of dynamic programming and optimal control theory. This is the main theme of the essays included in this fifth volume of Kenneth Arrow's Collected Papers.
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Bilateral Bargaining: Theory and Applications (Lecture Notes in Economics and Mathematical Systems)
Stefan Napel
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ASIN: 354043335X |
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The book investigates bargaining between two agents. It presents the history of bargaining analysis from Francis Y. Edgeworth's first formal study, followed by cooperative and noncooperative game-theoretic models, to recent stochastic evolutionary investigations. Connections between the results obtained by different methodology are highlighted. The established theory is generalized with respect to its underlying rationality assumptions. Links between usually neglected psychological factors - e.g. the persistence and capriciousness of an agent - and average bargaining success are identified. Applications of bargaining models contribute to the measurement of decision power and to the discussion of distributive justice.
Book Description
Bilateral bargaining situations are of great importance in reality. Traditional microeconomics, however, make cognitive and motivational assumptions of subjects` full rationality that are revealed as being unrealistic by a growing number of experimental investigations. The present book adds an important contribution to the understanding of principles of boundedly rational behavior by directly observing groups of subjects in a decision situation and videotaping their discussions. A very important result of the book is that the behavior of subjects is guided by aspirations regarding the final outcome. The levels of aspirations are influenced by prominence and different forms of the equity principle resulting in several fairness norms as to the allocation of the amount of money to be divided. Another important feature of the book stems from the analysis of break off discussions and enables a motivational explanation of the emergence of breakdowns in bargaining.
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