relative property rights - osvaldo grajales.ppt
TRANSCRIPT
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O S V A L D O G R A J A L E S
U N I V E R S I T Y O F A P P L I E D S C I E N C E S
S C H M A L K A L D E N
I N S T I T U T I O N A L E C O N O M I C S
P R O F . D R . K O N R A D B E I W I N K E L
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1. CONTRACTUAL OBLIGATIONS
People in modern society operate within a social network oflegally binding and legally nonbinding obligations intowhich they enter either voluntarily or though compulsion.
Relative property rights consist of a claim of a certainindividual (obligee), against one or more other individuals(the obligor/s), and can only be exercised by them.
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2. BASIC PRINCIPLES OF
CONTRACTUAL OBLIGATIONS
Contractual obligations can be prepared, concluded and exercised withinvarious institutional frameworks.
Neoclassical Economics - Crucial institutions are taken to be the market and
the firm
Focus on ideal types of the Perfect Market and the Profit
Maximizing - Obligations are controlled by competitionin a world full of information.
Neoclassical FirmContractual obligations are directed by an efficient
hierarchy. Which can process information instantly and
costlessly.
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2. BASIC PRINCIPLES OF
CONTRACTUAL OBLIGATIONS
Freedom of Contract
Enables the private owner of a property right , to transfer his property rightand the asset to which the right refers, to the locus where it is valued most
highly.
1. to conclude contract or not
2. to choose one`s partner(s) to a contract
3. to determine the contract`s content
4. to choose the form of the contract
5. freedom of will
6. the protection of third-party interests
The general idea animating this principle of freedom of contract is that each
individual is free to regulate the circumstances of his life himself.
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2. BASIC PRINCIPLES OF
CONTRACTUAL OBLIGATIONS
Liability from Contract- Contractual liberty is able to work if obligationscan be enforced by the state.
Role of LiquidityAbility to fulfill ones payment obligation. State some
times help through special pledges companies with liquidity troubles.
Sanctitys Promise- The obligation to keep ones promises.
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3. TYPES OF CONTRACTUAL OBLIGATIONS
Bilateral - where parties of the contract pledge to exchange performances
that both sides view as adequate and commensurate.Concept of Do, ut Deseach gives something to the other and receives
something in return.
Uniform Comercial Codedefines a Contract Sale as Both a present sale
of goods and a contract to sell goods at future time
Instant exchange (Zug um Zug)
Time gap between the fulfillment and the formation of the contract.
causes problems with transaction costs because of:
1.asymmetric information
2.transaction-specific investments
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3.1 ASSET SPECIFICITYWILLIAMSON
1. Site SpecificityClose relations between buyer and seller minimizing
inventory and transportation expenses
2. Physical Asset Specificity- Equipment and machinery that have lower
values in alternative uses
3. Human Capital Specificity- Learning by doing, investment or transferring
specific skills to a particular relationship
4. Dedicated AssetsWhen general investments that would not take place,
if not the particular customerderiving in excess capacity to the supplier.
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3.2 SALES CONTRACT
Provides for the permanent transfer of property rights in an asset from one
party to another by agreement.Uniform Commercial Code- a SALE consist in the passing of the tittle to
goods from the seller to the buyer for a determined price.
1- Precontractual Opportunism
Result s of asymmetric information. Seller knows more about his merchandise
than buyer does . i.e. selling second hand bad quality cars at the price of
good quality cars.2- Postcontractual Opportunism
Transaction-specific investments lead to opportunism. Can lead to contract
failure.
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3.3 LEASE CONTRACT
Renting or making use of an object for a price. The lease obliges the lessorto grant the lessee the use of the rented sache for the duration of thelease.
Types of lease in common law and civil law:
1- Of real property - an agreement between landlord and tenant
Who uses object and enjoys its benefits (Usus and Usus Fructus)
2- Of personal property - an agreement between lessor and lessee
Who just uses the object (Usus)
ostcontractualopportunism caused again by assymetric info or contract-specific investments.
Apartment example
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3.3 EMPLOYMENT CONTRACT
In German Civil Code The contract of service obliges the party who pledged
services to perform the promised services. The other party is obliged to grantthe stipulated compensation.
Labour Contract- Deals with services that are subject to instructions, that is a
relationship in which one side; the employer- has the right to control and
direct the other party employee, in the material details of how the work
must be performed. (Hierarchical transaction)
Employees can form coalitions.Precontractual Opportunism
Asymmetric information workers know their abilities better-partial
solution
Postcontractual Opportunism
Asymmetric information & specific investments
Even if a firm can monitor a worker`s effort in a very little cost, it will always
have incentive to say the monitored effort was low and to pay less.
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3.4 LOAN CONTRACT
The creditor of a money loan is obliged to place the agreed upon sum at the
debtor`s disposal. The debtor is obliged to pay the owed interest and toreturn the principal of the loan at maturity date to the creditor.
Precontractual Opportunism
Info asymmetry - Debtor knows his economic prospects and his integrity
better than creditor does.
Postcontractual Opportunism
Result of asymmetric info and specific investments.
Should focus on building long-term business relationships
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4 CONTRACTS THEORY ECONOMIST VIEWPOINT
Contracts and contracting process play vital roles in modern institutionaleconomics.
Klein stated Economists consider contracts as the means by which
transacting parties fully define future performance and allocate risks of
future contingencies
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4.1 THE AMBIGUITY OF THE TERM CONTRACT
Macneil stated It is possible to think of a whole spectrum of different types ofcontracts as defined from a legal standpoint.
Contracts at the extreme Relational pole entail strong personal involvement,
are long term, and anticipate the possibility of trouble as a normal part of
the ongoing association between the parties to the contract.
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5 ECONOMIC CONTRACT THEORIES
1. Agency-contract theory
2. Self-enforcing agreements
3. Relational contract
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Studies how economic actors can and do construct contractual arrangements.
Moral hazard - principal cannot be sure if the agent has put forth maximal effort. The
information asymmetry is the principal's inability to observe or verify the agent's action.
Performance-based contracts that depend on observable and verifiable output can often
be employed to create incentives for the agent to act in the principal's interest.
Adverse selection - principal cannot ascertain if the agent accurately represents his
ability to do the work for which he is being paid. the principal is not informed about a
certain characteristic of the agent For example, health insurance is more likely to be
purchased by people who are more likely to get sick.
5.1 AGENCY CONTRACT THEORY
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5.2 SELF-ENFORCING AGREEMENTS THEORY
Each party decides unilaterally whether the party is better off continuing or
stopping its relation with the other parties. It stops only if the current gain
from stopping exceeds the expected present value of his gains from
continuing.
No outside party intervenes to enforce the agreement, to determine whether
there has been violations, to assess damages, and to impose penalties.
A synonimous expression for this term is Implicit Contract. Both parts shall find
the equilibrium and Kronman list four devices as ideal types:
Hostages
Collaterals
Hands-Tying
Union
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5.3 RELATIONAL CONTRACT THEORY
The effect is based upon a relationship of trust between the parties. The
explicit terms of the contract are just an outline as there are implicit terms andunderstandings which determine the behaviour of the parties.
Application: cases with bilateral dependence of the contractual parties because of
the existence of transaction-specific investments.
Relational contracting approach includes the positive principal-agent theory
and the theory of self-enforcing agreements
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Relational contracts have limited guarantees by law, so opportunism is avoided
by means of nonlegal sanctions or , so-called, private ordering
Private orderings - consist of contractual arrangements which are protected by
law and are designed as governance structures to protect each party against
opportunism of the other side.
Relational contractsInformal agreements sustained by the value of future
relationships.
Integrated Form of Agreement (IFoA) (USA) - developed for Sutter Health
projects in California and used by some other healthcare providers
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5.4 TYPES OF PRIVATE ORDERING
1 Self-enforcing agreements
This agreement stands so long the parties believe the agreement ismutually beneficial and the agreement is not breached by either party.
2 Embeddedness
Refers to the degree to which economic activity is constrained by non-economic
institutions. In these cases economic activities such as "provisioning" are
"embedded" in non-economic kinship, religious and political institutions.
3 Tit-for-tat strategy
The strategy was first introduced Robert Axelrod's tournaments. Notably, it was
both the simplest strategy and the most successful.
An agent using this strategy will first cooperate, then subsequently replicate an
opponent's previous action. If the opponent previously was cooperative, the agent
is cooperative. If not, the agent is not.
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5.4 TYPES OF PRIVATE ORDERING
4 Private third-party-enforced contracts
Independent arbitrators must be required to resolve disputes andevaluate performance.
5 Regulation
Either private or public, is characteristic of third party
administration of a relational contract.
For example the regulator in the case of public utility, acts as an agent of
the suppliers and consumers of electricity.
6 Union
Of parties is the strongest form of protection against ex post
opportunism. This arrangement establishes a high level of legal protection
for a relationship between individuals.
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6 GOVERNANCE MODELS
4 Unified governance hierarchyThis is the case od of vertical integration in
which individual units give up their autonomy in order to make it more likely
that joint profit maximization. Structure is the most suitable in situations where
two parties find out that the most profitable mode of cooperation is as close
as possible in order to protect the highly specific investments.
5 Corporate governanceInvolves a mix of oof Hierarchy and Bilateral
governance. It is a complex institutional arrangement in which suppliers offinance to corporations Hierarchies try to assure themselves of securing a
return on their investments.
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6 WILLIAMSONS EFFICIENT GOVERNANCE MODEL
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THANK YOU FOR YOUR ATTENTION