Journal of LAW ECONOMICS

1、Journal of LAW ECONOMICS NOTICE :This material may be by copyright law (Title 17 U. S. Code), Journal of LAW ECONOMICSEdited byVOLUME (2) OCTOBER PRICE $6.00. LANDESandWILLIAM MR. H. COASEHow British Is the British Sickness?By SAMUEL of Law is published by the University of Chicago LawSchool. It is

2、published twice a year, in April and October. The annual subscriptionThe Demand for Regulation of Electric Utility Industryrate is price of issues is $6. subscription for three years is A. ._._._., 2 $25, and for years $32.Vertical Integration, Appropriablc Rents, and CompetitiveContracting ProcessB

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7、he Effect of the Dispersion of Land Please make all remittances payable to the The of Law By RONALD N. LAFFERTY AND III 381Communications to the editor, and manuscripts, should be addressed to the Editor,A Test of the Property-Rights of the Firm: The of Law The University of Chicago Law School, 1111

8、in the United StatesEast 60th Street, Chicago, Illinois 60637.By W. MARK AND by the University of Chicago Law School. All rights The Institutional Framework for incorporation: An Analysis of Agency Commissions in CaliforniaBy DOLORES AND Pie and the Consequences of By KENNETH G. AND Collusion, and A

9、ntitrustBy JOHN . . . . . . THIS SCHOOLVERTICAL APPROPRIABLERENTS, AND THE CONTRACTING M than forty years have passed since Coases fundamental insight thattransaction, coordination, and contracting costs must be considered ex-plicitly in explaining the extent of vertical integration. Starting from t

10、hetruism that profit-maximizing firms will undertake those activities that find to administer internally than to purchase in the market, forced economists to begin looking for previously constraints the trading process that might efficiently lead to an intrafirm rather than an transaction. This pape

11、r to add to this literature ing one particular cost of using the market system-the possibility of contractual opportunistic behavior.Opportunistic behavior has been identified and discussed in the modernanalysis of the organization of activity. Williamson, for has referred to effects on the contract

12、ing process of small numbersand Teece has elaborated:Even when all of the relevant contingencies can be specified in a contract, are still open to serious risks since they are not always honored. The are repletewith examples of the risks associated with relying on contracts displays of* We wish to a

13、cknowledge useful comments on previous drafts by StephenFriedberg. Victor Goldberg, Levis Keith Earl Thompson,and participants at a seminar at the Center for the Study of American at University and at Law and Economics Workshops at UCLA and University of Chicago.Financial assistance was provided by

14、a grant of the Lilly Endowment Inc. for the study ofproperty rights and by the Foundation for Research in Economics and Education. The authorsare solely responsible for expressed and for the remaining errors. R. H. The Nature of the Firm, 4 Economica 386 in Readings inPrice Theory 331 (George J. cds

15、. Oliver Williamson, and hies: Analysis and Antitrust Implications 26-30(1975). LAW ECONOMICSCOMPETITIVE 298299presentsite, the entire quasi rentwould be subject to threatofappropriation opportunism are not infrequent and very often out to be costly ineffectual.an unscrupulous or opportunistic publi

16、sher.Our primary interest concerns the means whereby this risk can be reduced orThe particular circumstance we emphasize as likely to produce a seriousavoided. threat of this type of reneging on contracts is the presence of appropriableing on the costs of avoiding risks of appropriation of rents in

17、specializedspecialized quasi rents. After a specific investment is made and such quasi by opportunistic individuals. This advantage of joint ownership of suchrents are created, the possibility of opportunistic behavior is very real. Fol- assets, namely, economizing on contracting costs necessary tol

18、owing Coases framework, this problem can be solved in two possible ways:insure behavior, must of course be against the costsvertical integration or contracts. The crucial assumption underlying the administering a of assets within the analysis of this paper is that, as assets become more specific and

19、 moreAn appropriable qua rent isnota monopoly rent in the sense, that is,appropriable quasi are created (and therefore the possible gains fromhe increased value of protected from market the value it the costs of contracting will generally in- have had in an open An appropriable ent 9c occur withcrea

20、se more than the c of vertical integration. Hence, weno market closure or restrictions on rival assets. Ored, an are more likely to ob. rve vertical integration.may be so to remove alized to a that if theprice paid the owner were somehow reduced the services to that userI. QUASI RENTS OF would not T

21、hus, even if there were free and open competition forAssume an asset is owned by one individual and rented to another indi-entry to the market, the specialization of installed asset to a particular uservidual. The quasi-rent value of the asset is the excess of its value over its(or more accurately t

22、he high cost of making it available to others) creates aquasi rent, but no “monopoly” rent. At the other extreme, an may besalvage value, that is, its value in its next best to another renter. The transferable to some other user at no reduction in value, while at thepotentially appropriable speciali

23、zed portion of the quasi rent is that portion,same time, entry of similar assets is restricted. In this monopoly rentif any, in excess of its value to the second highest-valuing If this seemslike a distinction without would exist, but no quasi rent.a difference, consider the following example.We can

24、 use monopoly terminology to refer to the phenomenon areImagine a printing press owned and operated by party A. Publisher B buysdiscussing as long we we are not referring to the usualprintingservices from party A by leasing his press monopoly created by government on or referring to a singleper day.

25、 The amortized fixed cost of the printing press is $4,000 per day and it or even highly concentrated supply. One of the fundamental has a current salvageable value if moved elsewhere of $1,000 (daily rental of this paper-is that monopoly bcttrr “market isequivalent). Operating costs are $1,500 and a

26、re paid by the printing-presspervasive. of anti mobility costs, “market owner, who prints final prirted pages for the publisher. Assume also that aexist in many situations not commonly called monopolies. There second publisher C is willing to offer at most $3,500 for daily service. Themany potential

27、 suppliers of a particular asset to a particular but current quasi rent on the installed machine is $3,000 (= $5,500 $1,500 the investment in the asset is be to a However,particular user that monopoly or or both. is Brelative touseofthemachineforpublishercreated. $3,500). BA related for vertical tha

28、t should not be withthe press owner would break even on his investment. If the publisher were thenour main interest is the optimal output and pricing two successiveable to cut his offer for the press from $5,500 down to he wouldmonopolists or bilateral monopolists the of marginal lessstill have the

29、press service available to him. He would be appropriating $2,000of the quasi rent from the press owner. The $2,000 difference between his prioragreed-to daily rental of and next best revenue available to the pressonce the machine is purchased and installed is less than the quasi rent andtherefore is

30、 potentially appropriable. If no second party were available at the David J. Vertical Integration Divestiture in the U.S. Oil Industry 31 301 JOIRNAL OF LAW AND ECONOMICS can $1,500, While newspaper publishers generally own their book not. One possible reason book publishers are less integrated may

31、be because a book is planned further ahead in and can economically bc with less haste. located in of the United States can be used. No press is to in part because speed in publication and distribution to generally far important for than and therefore quasi rents are not other can be considered books

32、 and in terms of of the time factor in distribution. In addition, magazines arc distributed nation- ally from at most a few plants, printing located in many different areas are possible competitors for an existing press used at a particular location. a press significantly less market power the of a

33、magazine compared to a andwe magazines generally printed in plants. Eric Periodicals and Books, in in York 178, 190 Hall magazine printing press may be a relatively specific asset compared to a printing press, appropriable quasi rents not trivial possibly are in the case of hookprinting). The printi

34、ng is therefore unlikely to be a short-term transaction form but will be a long-term arrangement. This matter of and bilateral monopoly has long been known and exposited in for private unstable, that is.many places. for example, Robert Vertical Integration and Sherman Act: “opportunistic,”countries

35、is painfully obvious. for economic of predict-Legal History of an Economic Misconception, 22 Chi. L. Rev. 157. 196 (1954); and able the enforcement property rights discussion in Fritz Martha Taber, Bilateral Monopoly, Successive Monopoly, noted.Vertical Integration, 27 101 where the problem is dated

36、 back to Oliver E. The Integration Production: Failure in 1838. CONTRACTING PROCESS303 JOURNAL OF LAW AND ECONOMICS302could still effectively cheat the owner-user of the of his specific ability to maintain the asset, then the problem is that integration of aregulation is what we are discussing in as

37、omewhatdifferentcontext. relevant asset, the employees human capital, has not occurred For theindicates how some government regulation can usefully be considered moment, however, we will concentrate solely on the question of long-termof avoiding or reducing the threat of loss of quasi rent. (Goldber

38、g treats rental versus ownership of durable “right to be as the problem of providing protection for used as to vertical can be that this force underlies a host of other contractual and institu- tional arrangements as stockpiling, insurance contracts, and vertical by the or other outside institution.

39、 or (2) implicitintegration. Our analysis will similarly suggest a rationale for the guarantee by the market mechanism of withdrawingof particular institutions and the form of governmental intervention or con-future opportunistic behavior occurs. Explicit lo: :-term contractstractual provisions as a

40、lternatives to vertical integration in a wide variety ofcan, in; but, cd cases.are often very stly solutions. entail costs of possible con-tingencies and CONTRACTUAL SOLUTIONS policing and of : andenforcing the in the specifyingThe primary alternative to vertical integration as a solution to the ger

41、 compulsory arbitration or more costs on the opportunisticproblem of opportunistic behavior is some form of economically enforceableparty (for example, via bonding) are alternatives often employed to economizelong-term contract. a (for example, one transaction, on litigation costs and to create flex

42、ibility without specifying every repeat sale) contract will not solve the problem. The relevant question thencontingency and dimension becomes when will vertical integration be observed a solution and when willSince every contingency cannot be cheaply specified in a contract or eventhe use of the ma

43、rket-contracting process occur. Some economists and law-known and because legal redress is expensive, transactors will generally alsoyers have defined this extremely difficult question away by calling a rely on an implicit type of long-term contract that employs a market rather thanterm contract a f

44、orm of vertical integration.” Although there is clearly alegal enforcement mechanism, namely, the imposition of a capital loss by thecontinuum here, we will not to blur the distinction between a withdrawal of expected future business. This goodwill market-enforcementterm rental agreement and ownersh

45、ip. We assume the opportunistic behav-mechanism undoubtedly is a major element of the contractual toior we are concentrating on can occur only with the former.”vertical integration. evidence that informal,For example, if opportunism occurs by the owner-lessor of an asset failing to unenforceable con

46、tractual practices predominate in maintain it properly for the user-lessee and hence increasing theeffective price, legal remedies (proving contract violation) may be verycostly. On the other hand, if the user owned the asset, then the employee whofranchisee arrangement and a a failed to maintain th

47、e asset properly could merely be fired. If the employeeIf cheating occurs, it is generally cheaper to an employee rather (The law has been changing to it more difficult to terminate either of 61 Am. Rev. 112 Proceedings, May 1971); and Oliver Williamson,laborer.) But the more job-tenure rights of an

48、 to a franchiseeMarkets and Hierarchies: Analysis and Antitrust Implications (1975).reduce his incentive to invest in building up future and the firm must benefits and costs of the alternative arrangements. A profit-sharing an explicit Victor P. Goldberg, and Administered Contracts, 7 Bell J. Manage

49、-long-term employment contract would be identical to a franchisee.ment Sci. 426, 439-41 (1976). The problems involved with renting human capital arc discussed See, for example, Friedrich Kessler Richard H. Stern, Competition, Contract, andVertical Integration, 69 Yale L.J. (1959). The recent Westing

50、house case dealing with failure contracts ongrounds of “commercial impossibility” illustrates these enforcement Nearly three It is commonly that of assets that can be damaged by careless use and for whichyears after outright cancellation by Westinghouse of their contractual commitment, the damage no

51、t easy to detect immediately are more likely to rather than rent the have not been adjudicated and those that have with have However, efficient maintenance considerations apply to short-term contracts and aresubstantially less than the original contracts would have to. A article irrelevant if the le

52、ngth the long-term rental contract coincides with the economic life of thePaul L. Commercial the Uranium Market, and the asset, Abstracting from tax considerations, the long-term contract remains less than completely6 Legal Stud. 119 analyzes the decision to on the contract to vertical only because

53、of the possibility of postcontractual opportunisticanticipated risk sharing and our not be opportunistic possibilities, however, may also exist within the firm; note 4 However. the publicity surrounding this case and judicial progress date arc tomake explicit long-term contracts a less feasible alte

54、rnative to vertical integration in the situa- We are abstracting from any considerations of a firms detection costs of determiningtions we arc proper Ease of termination also analytically distinguishes between a THE JOURNAL OF LAW AND ECONOMICS304lar suppliers and the existence of reciprocity agreem

55、ents among Theand that reliance on explicit legal sanctions is extremely Instead, The firms are said to generally rely on effective extralegal market threat of termination of this relationship mutually suppresses opportunisticLions, such as the depreciation of an opportunistic firms general goodwill

56、because of anticipated loss of future business, as a means of preventing of contracts.One way in which this market mechanism of contract enforcement mayby the firm to prevent cheating. As long both parties the make the same estimate potential short-run gain from the is by offering to the potential cheater a future “premium,” moreprecisely, a price sufficiently greater than average variable (that is, avoidable)quantity of this assurance that will be demanded and supplied will such thatcost a strea