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Law, Economics and Organizationin
Proactive International Contracting
A presentation at the
Future Law, Lawyering, and Language -
Helping People and Business Succeed
May 13, 2003 Helsinki
by
Associate professor, dr.juris Petri Keskitalo
The faculty of Law, University of Tromsoe
Law, Economics and OrganizationKey features:
- human actors:> are boundedly rational
>> economize>>> contracts are always incomplete
> are sometimes opportunistic> are able to plan with foresight
>> ex ante design of contracts that create credible commitments is essential
- central economic problem for organizations is adaptation> the adaptive needs of transactions differ> the adaptive capacities of alternative mechanisms for the
governance of transactions differ> transaction costs matter
Firm: the black box
Firm
- Asset specificity - Frequency of transactions
- Uncertainty
- Markets- Hierarchies
- Hybrids
Transaction Cost Economics-analysis of transactions by Oliver E. Williamson:
Governance mechanism
Nature of business
Contract
Contract: a ”black box” full of legal provisions?
Contract provisions
Contract type
Contract provisions
Governance mechanism
Contract type
Contract provisions
Nature of business
Governance mechanism
Contract type
Contract provisions
Nature of business
Governance mechanism
Contract type
Contract provisions
HIERARCHYGOVERNANCE
GOVERNANCE MECHANISMS:
MARKETGOVERNANCE
Organization
Contracts
Firm A
Contractual hierarchies
Firm A
SYMBIOSISGOVERNANCE
Organization Contracts
HIERARCHYGOVERNANCE
MARKETGOVERNANCE
GOVERNANCE MECHANISMS:
POWER MARKETADAPTATION
COOPERATIVE ADAPTATION
FirmA
TRANSNATIONAL BUSINESS :
STRATEGIES
Direct export sales
FirmA
DIRECTSALES
STRATEGIES
TRANSNATIONAL BUSINESS :
Retailer
Direct export sales
INDIRECTSALES
FirmA
DIRECTSALES
Sales Agent
STRATEGIES
TRANSNATIONAL BUSINESS :
Direct export sales
FirmA
License agreement
Franchise
LICENSING
DIRECTSALES
Sales Agent
Retailer
INDIRECTSALES
STRATEGIES
TRANSNATIONAL BUSINESS :
Joint Venture
Direct export sales
FirmA
Sales office
Franchise
ESTABLIHMENTABROAD
DIRECTSALES
Sales Agent
LICENSING
License agreement
Retailer
INDIRECTSALES
SubsidiarySTRATEGIES
TRANSNATIONAL BUSINESS :
Sales office
Franchise
Direct export sales
Sales Agent
License agreement
Subsidiary
GOVERNANCE
MECHANISMS
TRANSNATIONAL BUSINESS :
FirmA
Joint Venture Retailer
FirmA
Sales office
Franchise
Direct export sales
Joint Venture
Sales Agent
License agreement
Retailer
Subsidiary
GOVERNANCE
MECHANISMS
TRANSNATIONAL BUSINESS :
MARKETGOVERNANCE
Joint Venture FirmA
Sales office
Franchise
SYMBIOSISGOVERNANCE
Direct export sales
Sales Agent
License agreement
Retailer
Subsidiary
GOVERNANCE
MECHANISMS
TRANSNATIONAL BUSINESS :
MARKETGOVERNANCE
Joint Venture FirmA
Sales office
Franchise
MARKETGOVERNANCE
Direct export sales
POWERGOVERNANCE
Sales Agent
SYMBIOSISGOVERNANCE
License agreement
Retailer
Subsidiary
GOVERNANCE
MECHANISMS
TRANSNATIONAL BUSINESS :
POWERGOVERNANCE
Subsidiary
Joint Venture FirmA
Sales office
Franchise
MARKETGOVERNANCE
Direct export sales
Sales Agent
SYMBIOSISGOVERNANCE
License agreement
Retailer
GOVERNANCE
MECHANISMS
TRANSNATIONAL BUSINESS :
- Predict eventual problems and choose governance mechanism for the transaction
- Fine-tune the chosen governance mechanism according to the ex post-adaptive needs of the transaction
+ incentive intensity+ contractual safeguards
- Remember cost effectiveness considering negotiating, designing, monitoring and enforcement of contracts
+ efficient use of default legal norms+ efficient use of legal standards
+ knowledge of empirical findings in the LE&O-literature
- Protect transaction-specific investments against opportunism
LE&O-lessons for Proactive International Contracting:
The Power Point-presentation is available at:www.jus.uit.no/ansatte/keskitalo/Proactive LE&O.pps
The end