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Endogenous Specialization, Endogenous Transaction Costs, And The Theory Of The Firm

Author

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  • XIAOKAI YANG

    (Department of Economics, Monash University, Clayton, Victoria, 3800, Australia)

Abstract

In the paper the trade-offs among endogenous transaction costs caused by two-sided moral hazard, exogenous monitoring cost, and economies of specialization are specified in a Grossman, Hart and Moore (GHM) model to absorb Maskin and Tirole's recent critique and Holmstrom and Milgrom's criticism of the model of incomplete contract. The extended GHM model allowing incomplete contingent labour contract as well as complete contingent trade contract of goods is used to explore the implications of structure of ownership and residual rights for the equilibrium network size of division of labour and productivity.

Suggested Citation

  • Xiaokai Yang, 2006. "Endogenous Specialization, Endogenous Transaction Costs, And The Theory Of The Firm," Division of Labor & Transaction Costs (DLTC), World Scientific Publishing Co. Pte. Ltd., vol. 1(02), pages 105-126.
    • Handle: RePEc:wsi:dltcxx:v:01:y:2006:i:02:n:s0219871106000093
    DOI: 10.1142/S0219871106000093
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    References listed on IDEAS

    as
    1. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
    2. Kenneth J. Arrow & Yew-Kwang Ng & Xiaokai Yang (ed.), 1998. "Increasing Returns and Economic Analysis," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-26255-7, March.
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    Cited by:

    1. Limin Gao & Sajid Anwar, 2024. "Labour market rigidity and firm innovation," Australian Economic Papers, Wiley Blackwell, vol. 63(2), pages 237-257, June.

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    More about this item

    Keywords

    Theory of the firm; incomplete labour contract; asymmetric authority; two-sided moral hazard; transaction cost; asymmetric residual rights; division of labour; specialization;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D - Microeconomics
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • F - International Economics
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • L - Industrial Organization
    • O - Economic Development, Innovation, Technological Change, and Growth

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