Transaction Cost Theory and International Business

I discuss the cross-fertilization between transaction cost theory (TCT) and international business (IB), showing how TCT provides a powerful lens to study the institutions that organize international interdependencies, and especially multinational enterprises (MNEs). I then discuss some of the insights that IB can provide for the further development of TCT. I argue that a full explanation of why MNEs exist must rely on information asymmetry as well as asset specificity, and that the study of modes of foreign market entry leads to alternative viewpoints on equity joint ventures and hybrids. I conclude by stressing the need for a simultaneous consideration of market transaction costs and internal organization costs when examining governance choices.     

Do stronger intellectual property rights promote seed exchange: evidence from U.S. seed exports?

With increased private investment in crop breeding research in the developed world, intellectual property rights have gained importance in seed sector. Trade Related Aspects of Intellectual Property Rights (TRIPS)‐plus provisions included in recent free trade agreements between the developed and developing countries show a tendency of the developed world to impose their high standards for protection of plant intellectual property on the developing world. While stronger intellectual property rights can increase international exchange in seed, market power effect can lead to a reduction in exports of seed to foreign markets. This article estimates the impact of intellectual property rights on U.S. seed exports. The estimation is performed at a crop level using Heckman selection model. The results reveal that the impact of intellectual property rights varies across different types of crops—open‐pollinated, genetically modified, and hybrid crops. While TRIPS provisions are important to facilitate transfer of genetically modified crops, they play a minor role for open‐pollinated and hybrid crops. The results also show that plant breeders’ rights envisioned by the UPOV system can be important to promote seed exchange when proper mechanisms are put in place to enforce these rights.     

Generic pricing of FX,inflation and stock options under stochastic interest rates and stochastic volatility

We consider the pricing of FX, inflation and stock options under stochastic interest rates and stochastic volatility, for which we use a generic multi-currency framework. We allow for a general correlation structure between the drivers of the volatility, the inflation index, the domestic (nominal) and the foreign (real) rates. Having the flexibility to correlate the underlying FX/inflation/stock index with both stochastic volatility and stochastic interest rates yields a realistic model that is of practical importance for the pricing and hedging of options with a long-term exposure. We derive explicit valuation formulas for various securities, such as vanilla call/put options, forward starting options, inflation-indexed swaps and inflation caps/floors. These vanilla derivatives can be valued in closed form under Schöbel and Zhu [Eur. Finance Rev., 1999, 4, 23–46] stochastic volatility, whereas we devise an (Monte Carlo) approximation in the form of a very effective control variate for the general Heston [Rev. Financial Stud., 1993, 6, 327–343] model. Finally, we investigate the quality of this approximation numerically and consider a calibration example to FX and inflation market data.     

Regulatory hybrids: Partnerships, budgeting and modernising government

This paper examines the ‘modernising government’ initiative in the UK, and the ‘flexibilities’ – lead commissioning, integrated provision, and pooled budgets – introduced in the Health Act 1999. This policy reform, and the associated tools to operationalise it, placed ideas of cooperation and partnership at the heart of inter-organizational relations in the domain of public administration, and gave prominence to the roles of management control practices in facilitating cooperation. We consider how the ideals of cooperation and partnership were discursively articulated, how professional and administrative boundaries were given visibility in particular legal cases, and what happened when local practitioners sought to make these ideals operable. We demonstrate how cooperation initially emerged as a ‘local’ phenomenon, both prior to and subsequent to the Health Act 1999. We then examine how those delivering services sought to mediate pragmatically between legal and policy injunctions to engage in formal cooperation, and the imperative to provide services across organizational and professional boundaries. Finally, we consider the limits of cooperation across organizational boundaries in settings with strongly developed professional enclosures. The paper draws on both archival material and fieldwork to examine what are termed ‘regulatory hybrids’ – those inter-organizational processes, practices and expertises that are formed from two or more elements that previously existed separately, and that emerge in part out of regulatory or judicial interventions rather than simply the imperatives of voluntary coordination. The paper seeks to build on suggestions for developing the links between the accounting and public administration literatures, and it draws on ‘governmentality’ studies to analyse the phenomenon. This argues for the importance of considering three distinct and interrelated layers or levels of analysis: the programmatic or discursive, the practices and processes to which such discourses are intrinsically linked, and the professional ‘enclosures’ that can emerge in some domains. While drawing on governmentality studies, we also suggest extending them by paying greater attention than is customary in such writings to localised processes and practices. In particular, we propose the concept of ‘mediating instruments’ to explain how management control practices link the larger political culture with the ‘everyday doings of practitioners’.     

The Legal Nature of the Firm and the Myth of the Firm-Market Hybrid

A sharp conceptual distinction used to be drawn between the firm and the market. However, since the 1970s, many economists and sociologists have argued that the boundaries of the firm are indistinct. Ideas emerged of 'internal markets' within firms, of the 'quasifirm', of 'hybrid firms' and of firms as 'quasi-markets'. This article re-examines the formal, legal conception of the firm. It is argued that there is no good reason to abandon this conception, even in the light of relational contracting, networking, subcontracting and other developments. To avoid confusion, additional terms such as 'supplier network' or 'conglomerate' should be used to describe these phenomena, rather than abandoning a legally-based definition of the firm. With this clarified definition, 'internal markets' and 'hybrid firms' disappear from view.