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Over the past several years there has been an awareness that mar­ kets, contractual arrangements, and hierarchical organizations can be uti­ lized as alternative modes of coordinating resource utilization in the con­ text of the firm. In most practical situations mixed forms of organization are more frequent. That is, non-market coordination mechanisms are being utilized even in predominantly market oriented economies. The reasons for the use of one of these organizational modes over the others are still being examined extensively. Very often, asset specificity and bilateral monopoly, risk sharing under uncertainty, transaction cost considerations, and/or technological externalities (economies of scope) have been considered as the major reasons for preferring one of these modes over the others. However, the ultimate effect on the performance of the firm, of any of these aspects which result in the adoption of any specific organizational pattern, has to be through the cost curve and/or the demand curve. The neoclassical welfare concepts, which have been developed to examine the efficiency in the functioning of markets, are well known. The sources of inefficiency in the performance of the firm under different mar­ ket structures are also well documented. However, there is as yet no well established set of concepts to examine the economic efficiency of the other organizational forms. It is not clear that the neoclassical welfare concepts are not relevant even under the new organizational setting. Studies of this nature are a relatively new area of economic research.

Inhaltsverzeichnis

Frontmatter

Chapter 1. The Firm and Its Organization

Abstract
Consider the economy of Robinson Crusoe. This one person organization is such that Crusoe
(a)
owns all the resources utilized in production,
 
(b)
has full control on the use of resources, and
 
(c)
receives the entiree produce for own use.
 
T. V. S. Ramamohan Rao

Chapter 2. Welfare and Inefficiency

Abstract
In neoclassical economic theory the firm has three distinct features:
(a)
it is a one person organization,
 
(b)
the manager is also the owner of all the physical and financial assets of the firm and property rights enable him to be a claimant of all the residual profits in its operation, and
 
(c)
all the input and output transactions are conducted through the market mechanism. In the case of certain lines of production the economical size of the firm is large and the organization becomes increasingly complex. Even in such a context neoclassical theory assumes that the organizational structure and the incentive mechanisms, provided to the workers at different levels of heirarchy, will be designed in such a way that the firm can be managed as if it is a one person affair.
 
T. V. S. Ramamohan Rao

Chapter 3. Efficiency of Organizational Decisions

Abstract
The theory of the firm acknowledges that as the firm grows in size there will be an emergence of
(a)
diffused ownership and separation of ownership and control,
 
(b)
nonprice competition dominating the operation of the market mechanisms and price strategies, and
 
(c)
a complex internal organization supplementing the market mode as a management structure.
 
T. V. S. Ramamohan Rao

Chapter 4. Quality of Products

Abstract
The central theme of Chamberlin’s monopolistic competition is that firms would generally find product differentiation as a preferable alternative to price competition. By appropriately choosing the quality (or variety) of products offered on the market they can generate a market advantage for themselves.
T. V. S. Ramamohan Rao

Chapter 5. Search Costs, Advertising and Welfare

Abstract
Advertising and selling costs, which are essential features of the product markets under monopolistic competition, have significant implications for welfare economics34. Three basic mechanisms, through which advertising affects welfare have been identified:
(a)
the demand curve for the firm, which is altered due to the changes in the consumer preferences,
 
(b)
the cost at which the product is made available to the consumer, and
 
(c)
the strategies of rival firms in the market and their effect on the nature of the demand curve for a firm.
 
T. V. S. Ramamohan Rao

Chapter 6. Transaction Costs and Vertical Integration

Abstract
Vertical integration into input production generally entails
(a)
the avoidance of monopolistic price cost margins of input suppliers,
 
(b)
a reduction in the market related and/or firm specific transaction costs, and
 
(c)
lower costs attributable to economies of scale and scope resulting from joint production.
 
T. V. S. Ramamohan Rao

Chapter 7. Inventory Decisions

Abstract
Almost throughout the theory of monopolistic competition it has been acknowledged that the market conditions would be such that
(a)
the size and scope of the firm will have to be sufficiently large to enable it to adopt an effective policy of product differentiation, and
 
(b)
there is an under utilization of production capacity.
 
T. V. S. Ramamohan Rao

Chapter 8. Hierarchical Organizations

Abstract
Upto this point in the analysis the emphasis has been on the nonprice decisions of the firm. Technological efficiency of production has been taken for granted throughout the analysis. This can be stated in more concrete terms. Let x1,x2 be any two inputs in the production of Y and let
$$Y = f ({x_1},{x_2})$$
be the neoclassical production function. Then the choices of inputs is technologically efficient if the management chooses x1,x2along the isoquant for a given Y It was assumed throughout the analysis that the management is motivated to choose the input combinations along the isoquant.
T. V. S. Ramamohan Rao

Chapter 9. Information, Monitoring and Incentives

Abstract
Unified governance (organization) within a firm can be explained in terms of the following features:
(a)
A group of individuals come together to perform certain tasks68,
 
(b)
As the organization becomes large and complex there is a necessity to clearly define division of labor and implement coordination of work through delegation of authority within the organization69,
 
(c)
Decision making is faciliated by information exchange and monitoring the performance, and
 
(d)
Incentive payment schemes are devised from the perspective of certain well defined organizational goals.
 
T. V. S. Ramamohan Rao

Chapter 10. In Retrospect

Abstract
The concept of technical efficiency is very well entrenched in the literature of welfare economics. However, much of the time it is defined in terms of the production function. In the standard neoclassical literature the production isoquants are assumed to be a well defined function
$$Y = f ({x_1},{x_2})$$
of the inputs. As such, for a given Y, there are a variety of combinations of (x1,x2) along the isoquant which represent the minimal inputs required in the production process. Every point along the isoquant is therefore considered to be technically efficient.
T. V. S. Ramamohan Rao

Backmatter

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