Economics

"Industrial marketing should be understood as a relationship-specific rather than a transaction-specific construct."

"In industrial marketing settings, the relationship between buyer and seller is frequently long term, close and involving a complex pattern of interaction between and within each company. The marketers' and buyers' task in this case may have more to do with maintaining these relationships than with making a straightforward sale or purchase."

"In recent years economists and historians have increasingly turned their attention to modern economic institutions. Economists such as Edward S. Mason, A. D. H. Kaplan, John Kenneth Galbraith, Oliver E. Williamson, William J. Baumol, Robin L. Marris, Edith T. Penrose, Robert T. Averitt, and R. Joseph Monsen, following the pioneering work of Adolph A. Berle, Jr., and Gardiner C. Means, have studied the operations and actions of modern business enterprise. They have not attempted, however, to examine its historical development, nor has their work yet had a major impact on economic theory. The firm remains essentially a unit of production, and the theory of the firm a theory of production."

"A firm is defined in economic theory as a market imperfection introduced to deal with transaction costs. And the sort of theory is that the imperfections, the firms, are kinda like little islands in a free market sea. But the problem with that is that the sea doesn't remotely resemble a free market, and the islands are bigger than the sea."

"Outside the firm, price movements direct production, which is co-ordinated through a series of exchange transactions on the market. Within a firm, these market transactions are eliminated and in place of the complicated market structure with exchange transactions is substituted the entrepreneur-coordinator, who directs production. It is clear that these are alternative methods of coordinating production. Yet, having regard to the fact that, if production is regulated by price movements, production could be carried on without any organization at all might we ask, why is there any organization?"

"[The decisionmaking role of the firm has progressed from the neoclassical standpoint of profit maximization to sales maximization, utility maximization, and satisficing. From the Operation Research point of view] ...the ideal picture is that someone, presumable the firm that hires the operations researcher, hands him, on a silver platter, an objective function. By talking to the engineers, or by looking into a few scientific laws, he determines the policy alternatives available and also the model"

"We believe that, in order to understand contemporary economic decision making, we need to supplement the study of market factors with an examination of the internal operation of the firm – to study the effects of organizational structure and conventional practice on the developments of goals, the formation of expectations, and the execution of choices."

"It is probable that when future historians of economic thought look back over this century, the thirties will appear as an era of rapid development in economic theory. Not only has there been unusual activity in monetary theory, theory of value. but extensive transformations have also been made in the basic theory of value. The outstanding publications in this field are, of course, Joan Robinson's Theory of Imperfect Competition and Chamberlin's Theory of Monopolistic Competition, the first produced in Cambridge, England, and the second in Cambridge, Massachusetts. These volumes mark the explicit recognition of the theory of the firm as an integral division of economic analysis upon which rests the whole fabric of equilibrium theory. General equilibrium is nothing more than the problem of the interaction of individual economic organisms, under various conditions and assumptions; as a necessary preliminary to its solution, an adequate theory of the individual organism itself is necessary."

"The purpose of this book is to show how economic analysis can be used in formulating business policies. It is therefore a departure from the main stream of economic writings on the theory of the firm, much of which is too simple in its assumptions and too complicated in its logical development to be managerially useful. The big gap between the problems of logic that intrigue economic theorists and the problems of policy that plague practical management needs to be bridged in order to give executives access to the practical contributions that economic thinking can make to top-management policies."

"Edith Penrose has been one of the most significant economists of the second part of the twentieth century. Her contribution to the theory of the firm has reinvented and productively developed the classical tradition in economics. It has informed the currently dominant resource/knowledge-based theory of the firm. Penrose's contribution, however, extends to a great variety of areas, to include industry organization, strategic management, international business, human resource management, economics of innovation and technological change, history, methodology, macroeconomics, and much more."

"Around 1958, I became aware of H.A. Simon's seminal papers on bounded rationality and was immediately convinced by his arguments. I tried to construct a theory of boundedly rational multigoal decision making. Together with Heinz Sauermann, I worked out an "aspiration adaptation theory of the firm" which was published as a journal article in 1962... More and more I came to the conclusion that purely speculative approaches like that of our paper of 1962 are of limited value. The structure of boundedly rational economic behavior cannot be invented in the armchair, it must be explored experimentally."

"BEHAVIORAL THEORIES OF THE FIRM: A turn from structure to internal processes was the theme of authors such as Richard Cyert and James March, Daniel Katz and Robert Kahn, and Karl Weick. Cyert, an economist, and March, a psychologist, emphasized internal competition for scarce resources, interest groups forming coalitions, conflict resolution, organizational learning, and among other concepts, the adaptive processes of decision making and performance feedback. Psychologists Katz and Kahn emphasized organizational roles, role conflict and ambiguity, the organization as an open input-output system, and circumstances when the hierarchy was preferable to participative styles. Weick, another psychologist, emphasized the organizing process rather than the organizational product and suggested that actions precede goals (goals are retrospective), that individual behaviors are interlocking, and so on."

"All but one of those just mentioned was a psychologist by education, so it should not be surprising that their view of organization theory emphasizes internal processes and resembles the micro approach of organizational behavior. Another group of theorists, all but one educated as a sociologist, viewed organizations as a product of macro environmental forces. These behavioralists were Jeffrey Pfeffer and Gerald Salancik, Michael Hannan and John Freeman, and John Meyer and Richard Scott. Pfeffer (the only nonsociologist) and Salancik presented a resource-dependent theory that postulates that organizations require support from their external environment and can only survive to the extent that this support is forthcoming. Managers form coalitions to gather support in an open system of external relationships in which there are constraints that create either a munificent or scarce resource situation. Hannan and Freeman’s organizational ecology theory offers the idea that organizational survival is a process of adaptation and success, or fail to adapt and exit. The authors recognized the Darwinian nature of their theory, but have used it to study organizational populations such as labor unions and newspapers for population entries, adaptation, and mortality. The neo-institutional theory of Meyer and Scott (and others) holds that organizational environments are shaped by societal expectations that provide legitimacy to an organization’s existence. By conforming to cultural rules, such as custom or law, formal organizations are able to take on the prevailing view of society."

"Monetary policy decisions tend to regress toward the mean and to be inertial—and hence biased in just the same way that adaptive expectations are biased relative to rational expectations. But errors like that, while systematic, will generally be small and will tend to shrink over time. And, in return, the system builds in natural safeguards against truly horrendous mistakes."

"I consider myself a mainstream researcher in the field of business policy, and the ideas I want to describe in this paper concern the foundations of a theory of business strategy that is rooted in economics. But is such a paper, whatever its merits, really appropriate at a conference entitled 'Non-traditional Approaches to Policy Research'? Surprisingly, it is. The use of economic theory to model and explicate business strategy, as it is understood within the field of business policy, is distinctly non-traditional."

"This Chicago-style approach, sometimes known as ‘Price Theory’ because of the fundamental role that prices often play, is exemplified in the path-breaking work of Gary Becker, Ronald Coase, Milton Friedman, Sherwin Rosen, George Stigler, and many others. Price theory has shed light not only on the most fundamental topics of traditional economics (e.g. consumption, saving, taxation, regulation), but also pioneered the use of economic tools in studying a wide range of other human behavior (e.g. crime and corruption, discrimination, marriage)."

"Economics is that way of understanding behavior that starts from the assumption that people have objectives and tend to choose the correct way to achieve them."

"Essentially the fault lies in the fact that the democratic political process is at best regulated rivalry; it does not even in theory have the desirable properties that price theory ascribes to truly competitive markets."

"Some of post-Keynesian price theory comes forth from the belief that universal competition is a bad assumption. I have all my life known that. So I have found it an unrewarding approach and have not paid much attention to it."

"Early in my professional life, I found that many areas of economics attracted me. I started working and publishing in price theory by 1938. In 1946, I published an early work on linear programming (The Cost of Subsistence) which solved the problem only approximately; George Dantzig soon presented the exact solution. In the 1940s, I began empirical work on price theory, starting with a test of the kinked oligopoly demand curve theory of rigid prices."

"Hayek's work on price theory is central to my own thinking about how to manage the Wikipedia project. … [O]ne can't understand my ideas about Wikipedia without understanding Hayek."

"Linear programming is viewed as a revolutionary development giving man the ability to state general objectives and to find, by means of the simplex method, optimal policy decisions for a broad class of practical decision problems of great complexity. In the real world, planning tends to be ad hoc because of the many special-interest groups with their multiple objectives."

"The researcher hoping to break new ground in the theory of experimental design should involve himself in the design of actual experiments. The investigator who hopes to revolutionize decision theory should observe and take part in the making of important decisions."

"Pascal is called the founder of modern probability theory. He earns this title not only for the familiar correspondence with Fermat on games of chance, but also for his conception of decision theory, and because he was an instrument in the demolition of probabilism, a doctrine which would have precluded rational probability theory."

"Decision theory, as it has grown up in recent years, is a formalization of the problems involved in making optimal choices. In a certain sense — a very abstract sense, to be sure — it incorporates among others operations research, theoretical economics, and wide areas of statistics, among others."

""Interactive Decision Theory" would perhaps be a more descriptive name for the discipline usually called Game Theory."

"Decision theory can be pursued not only for the purposes of building foundations for political economy, or of understanding and explaining phenomena that are in themselves intrinsically interesting, but also for the purpose of offering direct advice to business and governmental decision makers. For reasons not clear to me, this territory was very sparsely settled prior to World War II. Such inhabitants as it had were mainly industrial engineers, students of public administration, and specialists in business functions, none of whom especially identified themselves with the economic sciences..."

"In general terms, transactions costs are the costs that arise when individuals exchange ownership rights to economic assets and enforce their exclusive rights. A clear definition of transactions costs does not exist, but neither are the costs of production in the neoclassical model well defined."

"Markets are institutions that exist to facilitate exchange, that is, they exist in order to reduce the cost of carrying out exchange transactions. In an economic theory which assumes that transaction costs are nonexistent. markets have no function to perform, and it seems perfectly reasonable to develop the theory of exchange by an elaborate analysis of individuals exchanging nuts for apples on the edge of the forest or some similar fanciful example. This analysis certainly shows why there is a gain from trade, but it fails to deal with the factors which determine how much trade there is or what goods are traded."

"Following the lead given by new institutional economics, we shall take the transaction as our unit of analysis. For our purposes, a transaction can be thought of as any act of social exchange that depends on information flows for its accomplishment. Transactions can be as simple and brief as the purchase of a packet of cigarettes, or as complex as and extended as those which bind a Zen master to his disciples. Like institutional economists, we are interested in the relationship that can be established between different transactional characteristics and the phenomenon of institutionalization. Our use of the term transaction, however, will extend beyond that of institutional economics where the focus has tended to be primarily on transaction costs and efficiency considerations. These, to be sure, are relevant. But, as we shall see, they are not the whole story."

"These individual actions are really trans-actions instead of either individual behavior or the "exchange" of commodities. It is this shift from commodities and individuals to transactions and working rules of collective action that marks the transition from the classical and hedonic schools to the institutional schools of economic thinking. The shift is a change in the ultimate unit of economic investigation. The classic and hedonic economists, with their communistic and anarchistic offshoots, founded their theories on the relation of man to nature, but institutionalism is a relation of man to man. The smallest unit of the classic economists was a commodity produced by labor. The smallest unit of the hedonic economists was the same or similar commodity enjoyed by ultimate consumers. One was the objective side, the other the subjective side, of the same relation between the individual and the forces of nature. The outcome, in either case, was the materialistic metaphor of an automatic equilibrium, analogous to the waves of the ocean, but personified as "seeking their level." But the smallest unit of the institutional economists is a unit of activity -- a transaction, with its participants. Transactions intervene between the labor of the classic economists and the pleasures of the hedonic economists,simply because it is society that controls access to the forces of nature, and transactions are, not the "exchange of commodities," but the alienation and acquisition, between individuals, of the rights of property and liberty created by society, which must therefore be negotiated between the parties concerned before labor can produce, or consumers can consume, or commodities be physically exchanged."

"It is always sound business to take any obtainable net gain, at any cost and at any risk to the rest of the community."

"The superior gratification derived from the use and contemplation of costly and supposedly beautiful products is, commonly, in great measure a gratification of our sense of costliness masquerading under the name of beauty."

"It costs so much to be a full human being that there are very few who have the enlightenment, or the courage, to pay the price...One has to accept pain as a condition of existence. One has to court doubt and darkness as the cost of knowing."

"A large part of what we think of as economic activity is designed to accomplish what high transaction costs would otherwise prevent or to reduce transaction costs so that individuals can negotiate freely and we can take advantage of that diffused knowledge of which Friedrich Hayek has told us."

"Markets are institutions that exist to facilitate exchange, that is, they exist in order to reduce the cost of carrying out exchange transactions. In an economic theory which assumes that transaction costs are nonexistent. markets have no function to perform, and it seems perfectly reasonable to develop the theory of exchange by an elaborate analysis of individuals exchanging nuts for apples on the edge of the forest or some similar fanciful example. This analysis certainly shows why there is a gain from trade, but it fails to deal with the factors which determine how much trade there is or what goods are traded."

"There are in the Exhibition some beautiful examples of such amongst the productions of other countries as well as of our own. They are made by the united labour of many women. The cost of a piece of lace will consist of:"

"Quality means meeting customers' (agreed) requirements, formal and informal, at lowest cost, first time every time."

"Low cost relative to competitors becomes the theme running through the entire strategy, though quality, service and other areas cannot be ignored."

"True heroism is remarkably sober, very undramatic. It is not the urge to surpass all others at whatever cost, but the urge to serve others at whatever cost."

"Microeconomics, including the study of individual choice and of group choice in market and nonmarket processes, has generally been considered a field science as distinct from an experimental science. Hence microeconomics has sometimes been classified as "non-experimental" and closer methodologically to meteorology and astronomy than to physics and experimental psychology... But the question of using experimental or nonexperimental techniques is largely a matter of cost, and generally the cost of conducting the most ambitious and informative experiments in astronomy, meteorology, and economics varies from prohibitive down to considerable. The cost of experimenting with different solar system planetary arrangements, different atmospheric conditions, and different national unemployment rates, each under suitable controls, must be regarded as prohibitive."

"In the late 1930s, E.S. Mason wrote a series of papers which established the research programme which became industrial organisation. Many of these papers discussed the lessons for antitrust policy from the Robinson/ Chamberlin revolution. Although these papers made some proposals for a strengthening of antimonopoly measures, it is clear that there is a decisive break between the emerging Harvard school the old J.B. Clark/ Marshallian preoccupation with freedom and openness of competition, which Mason refers to as "antiquated and inadequate.""

"In recent years economists and historians have increasingly turned their attention to modern economic institutions. Economists such as Edward S. Mason, A. D. H. Kaplan, John Kenneth Galbraith, Oliver E. Williamson, William J. Baumol, Robin L. Marris, Edith T. Penrose, Robert T. Averitt, and R. Joseph Monsen, following the pioneering work of Adolph A. Berle, Jr., and Gardiner C. Means, have studied the operations and actions of modern business enterprise. They have not attempted, however, to examine its historical development, nor has their work yet had a major impact on economic theory. The firm remains essentially a unit of production, and the theory of the firm a theory of production."

"The economic fate of a corporation, like that of other business enterprises, is ultimately controlled by individual consumers. But most consumers may be no more interested in taking on management responsibility than stockholders are. Nor is it enough that those consumers who don’t want to be bothered don’t have to be. The very existence of enhanced powers for non-management individuals to have a say in the running of a corporation would force other consumers and stockholders to either take time to represent their own views and interests in this process or risk having people with other agendas over-ride their interests and interfere with the management of the enterprise, without these outsiders having to pay any price for being wrong."

"It can be argued that the U.S. brokerage and investment banking industry has transformed the modern American stock market into nothing more than a mechanism for transferring wealth from shareholders to management."

"Berle and Means’ book remains the point of departure and the central reference for reflection about corporate governance. It has given rise to differing, even contradictory interpretations, which explains how it could be used in support of opposing theories, notably on the question of the relationship between shareholders and managers. Thus, it has been used to argue in favor of the shareholder conception that is now dominant, even though it contains, as we shall see, a conception of the corporation that is radically different to the contractualist view that underpins the current doctrine of shareholder primacy."

"[...] limits on shareholder democracy correlate with both unusually good and unusually poor corporate performance [...], suggesting that democracy limits both extremes."

"Why have stockholders?... What contribution do they make, entitling them to heirship of half the profits of the industrial system, receivable partly in the form of dividends, and partly in the form of increased market values resulting from undistributed corporate gains? Stockholders toil not, neither do they spin, to earn that reward. They are beneficiaries by position only. Justification for their inheritance must be sought outside classic economic reasoning.... [and] can be founded only upon social grounds... that justification turns on the distribution as well as the existence of wealth. Its force exists only in direct ratio to the number of individuals who hold such wealth. Justification for the stockholder's existence thus depends on increasing distribution within the American population. Ideally the stockholder's position will be impregnable only when every American family has its fragment of that position and of the wealth by which the opportunity to develop individuality becomes fully actualized."

"These efforts to induce dissent in corporate boardrooms are likely to be unpopular with some CEOs, just as discussants and referees were initially controversial in academia. But opposition politicians, counterargument in courts, and referees do seem to deliver better decisions, and so might corporate boardrooms subjected to more shareholder democracy and accountability."

"The rise of the modern corporation has brought a concentration of economic power which can compete on equal terms with the modern state - economic power versus political power, each strong in its own field. The state seeks in some aspects to regulate the corporation, while the corporation, steadily becoming more powerful, makes every effort to avoid such regulation... The future may see the economic organism, now typified by the corporation, not only on an equal plane with the state, but possibly even superseding it as the dominant form of social organization. The law of corporations, accordingly, might well be considered as a potential constitutional law for the new economic state, while business practice is increasingly assuming the aspect of economic statesmanship."