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Liverpool Merchants Versus Ohmi Merchants: How and Why They Dealt with Risk and Insurance Differently Read chapter Read first chapter

2021 | OriginalPaper | Chapter

7. The Profit-Maximizing and Labor-Managed Firms: A Unified Approach to the Role of Information

Authors : Yasuhiro Sakai, Keisuke Sasaki

Published in: Information and Distribution

Publisher: Springer Singapore

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Abstract

This paper analyzes the welfare implications of acquiring information for profit-maximizing and labor-managed firms (in short, PMF and LMF). We invent a unified method of exploring the role of information in a two-person game under uncertainty on the basis of comparative static analysis, and then apply the method to both the PMF and LMF. It is shown that whereas the LMF’s behavior is analogous to that of the PMF in some circumstances, the former may be entirely different from the latter in others. Because a special status is accorded to labor as a variable factor of production, the informational analysis of the LM economy requires special care for both computation and interpretation.
Looking carefully at reality, there are a variety of capitalist firms, presumably forming a sort of spectrum with PMF at one end and the LMF at the other end. We would strongly believe that LMF also matters and should be worthy of due investigation.

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previous chapter Information Exchange among Firms and Their Welfare Implications (Part III): Private Risks and Oligopoly Models
next chapter Risk Aversion and Information Exchange: The Constant Absolute Risk Aversion Function and its Applications
Footnotes
1
For the critical role of information in the Japanese economy, see Imai (1992).
 
2
For an overview and evaluation of information sharing in the PM economy, see Sakai (1990, 1991).
 
3
An excellent summary of the literature on the LM economy was given by Bonin and Putterman (1987).
 
4
For instance, Assumption (L) is met in the pioneering models of Basar and Ho (1974) and Ponssard (1979). Also see Sakai (1990, 1991).
 
5
For the stability analysis of a two-person game and its application to duopoly, see Friedman (1977) and Okuguchi (1978).
 
6
We may say that y i and y i are strategic substitutes (or strategic complements) if and only if the second cross derivative ∂2Zi /∂yi ∂yj is negative (or positive). See Bulow et al. (1985).
 
7
In general, the inverse demand function should be written as p = H (X, b), where b represents a shift parameter. To make our analysis manageable, we assume here that the function H is separable such that H (X, b) = b −h(X)
 
8
It is Oi (1961), one of Sakai’s respected teachers at Rochester, who first noticed the convexity of the profit function with respect to price under perfect competition, arguing that price instability makes the PMF better off. Later, Rothenberg and Smith (1971) extended Oi’s analysis to cover a general competitive model where the feedback for other sector is also allowed for. In their analysis, the PMF is expected to instantaneously adjust its output decision ex post for a random demand, which , in effect, means the PMF takes a contingent action on an ex ante basis. In the present paper, by reformulating the ex post Oi-Rothenberg-Smith analysis as an ex ante one, we shed new light on the value of information in duopoly.
 
9
See Miyamoto (1980a, 1980b), Bonin and Putterman (1987), and others.
 
10
It is noted that the reaction function may be positively or negatively sloped, depending on the form of the demand and production functions.
 
11
In passing, we note that dxi / dk is positive (see (7.35). Therefore, output and labor respond positively to increase in fixed cost. Interestingly, this is another “perverse behavior” of the LMF.
 
12
This result is sensitive to the assumption that the PMF is a risk-neutral player in the sense that it seeks maximal expected profit. If we instead assume that the PMF displays risk aversion and hence maximizes its expected utility of profit, then the acquisition of cost information is expected to have a significant influence on the welfare of the PMF. The same reservation should be kept for the LMF world. In short, risk aversion really matters! For this point, see Sakai and Yoshizumi (1991a, 1991b). Also see Chapters 8 and 9 of this book.
 
13
The Ohmi merchants of Japan give us a good example of the traditional philosophy of “three-way advantages,” namely, advantages for the seller, the buyer, and the society. It seems that the philosophy is still alive in Japan today. See Ogura (1980, 1991).
 
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Metadata
Title
The Profit-Maximizing and Labor-Managed Firms: A Unified Approach to the Role of Information
Authors
Yasuhiro Sakai
Keisuke Sasaki
Copyright Year
2021
Publisher
Springer Singapore
Book
Information and Distribution

Print ISBN: 978-981-10-0100-0

Electronic ISBN: 978-981-10-0101-7

Copyright Year: 2021

DOI
https://doi.org/10.1007/978-981-10-0101-7_7