Posts filed under ‘Theory of the Firm’
| Peter Klein |
The ISNIE 2014 Call for Papers is now available. The conference is at Duke University, 19-21 June 2014, home of President-Elect and Program Committee Chair John de Figueiredo. Bob Gibbons and Timur Kuran are keynote speakers. ISNIE is one of our favorite conferences, so please consider submitting a proposal! Submissions are due 30 January 2014.
| Peter Klein |
It finds what you’d expect: When agents are assigned multiple tasks, and evaluated using objective performance criteria, they will tend to favor those tasks that produce measurable outputs, at the expense of equally important, but harder-to-measure tasks. This is why, for example, professors at research universities often neglect their teaching duties. Sure it’s important, but quality is hard to demonstrate, so I’ll concentrate on publications, grants, and other research activities.
Testing the Theory of Multitasking: Evidence from a Natural Field Experiment in Chinese Factories
Fuhai Hong, Tanjim Hossain, John A. List, and Migiwa Tanaka
NBER Working Paper No. 19660, November 2013
A well-recognized problem in the multitasking literature is that workers might substantially reduce their effort on tasks that produce unobservable outputs as they seek the salient rewards to observable outputs. Since the theory related to multitasking is decades ahead of the empirical evidence, the economic costs of standard incentive schemes under multitasking contexts remain largely unknown. This study provides empirical insights quantifying such effects using a field experiment in Chinese factories. Using more than 2200 data points across 126 workers, we find sharp evidence that workers do trade off the incented output (quantity) at the expense of the non-incented one (quality) as a result of a piece rate bonus scheme. Consistent with our theoretical model, treatment effects are much stronger for workers whose base salary structure is a flat wage compared to those under a piece rate base salary. While the incentives result in a large increase in quantity and a sharp decrease in quality for workers under a flat base salary, they result only in a small increase in quantity without affecting quality for workers under a piece rate base salary.
| Peter Klein |
The University of Dundee’s Scottish Centre for Economic Methodology is hosting a conference 18 November 2013, “Origins of the Theory of the Firm: Ronald Coase at Dundee, 1932-1934.” The program looks really interesting:
- Keith Tribe, “Dundee and Interwar Commercial Education.”
- Billy Kenefick, “‘A great industrial cul-de-sac, a grim monument to “man’s inhumanity to man.” ‘ Dundee by the early 1930s.”
- Carlo Morelli, “Market & Non-Market Co-ordination: Dundee and its Jute Industry – The Case Study for Ronald Coase?”
- David Campbell, “Agency, Authority and Co-operation in the Firm: Coase, Macneil, Marx.”
- Alice Belcher, “Coase and the Concept of Direction: How Valuable are Legal Concepts in the Theory of the Firm?”
- Brian Loasby, “Ronald Coase’s Theory of the Firm and the Scope of Economics.”
- Alistair Dow & Sheila Dow, “Coase and Scottish Political Economy.”
- Eyup Ozveren & Ilhan Can Ozen, “Coase versus Coase: What if the Market Were One Big Firm Instead?”
- Neil Kay, “Coase, The Nature of the Firm, and the Principles of Marginal Analysis.”
| Peter Klein |
Three recent NBER papers on compensation, performance, and productivity:
Ann Bartel, Brianna Cardiff-Hicks, Kathryn Shaw
NBER Working Paper No. 19412, September 2013
Due to the limited availability of firm-level compensation data, there is little empirical evidence on the impact of compensation plans on personal productivity. We study an international law firm that moves from high-powered individual incentives towards incentives for “leadership” activities that contribute to the firm’s long run profitability. The effect of this change on the task allocation of the firm’s team leaders is large and robust; team leaders increase their non-billable hours and shift billable hours to team members. Although the motivation for the change in the compensation plan was the multitasking problem, this change also impacted the way tasks were allocated within each team, resulting in greater teamwork.
William Mullins, Antoinette Schoar
NBER Working Paper No. 19395, September 2013
Using a survey of 800 CEOs in 22 emerging economies we show that CEOs’ management styles and philosophy vary with the control rights and involvement of the owning family and founder: CEOs of firms with greater family involvement have more hierarchical management, and feel more accountable to stakeholders such as employees and banks than they do to shareholders. They also see their role as maintaining the status quo rather than bringing about change. In contrast, professional CEOs of non-family firms display a more textbook approach of shareholder-value-maximization. Finally, we find a continuum of leadership arrangements in how intensively family members are involved in management.
George J. Borjas, Kirk B. Doran
NBER Working Paper No. 19445, September 2013
Knowledge generation is key to economic growth, and scientific prizes are designed to encourage it. But how does winning a prestigious prize affect future output? We compare the productivity of Fields medalists (winners of the top mathematics prize) to that of similarly brilliant contenders. The two groups have similar publication rates until the award year, after which the winners’ productivity declines. The medalists begin to “play the field,” studying unfamiliar topics at the expense of writing papers. It appears that tournaments can have large post-prize effects on the effort allocation of knowledge producers.
Thank goodness I haven’t won the Clark Medal, Nobel Prize, or a MacArthur Award. I want to keep my productivity high!
| Nicolai Foss |
Fritz Machlup famously argued that economists should not care about the specificities (e.g., internal organization) of individual firms, as this was unlikely to bring substantial additional insight in the market outcomes that were the real objects of interests for economists (here). Thus, for the purposes of price theory, firms within an industry could essentially be taken to be homogenous. Machlup’s view has been reflected in much of the micro-economics of the firm, not just in the standard Marshallian approach, but also in later contract theoretic and transaction cost approaches. While contract theory and transaction cost insights are surely capable of contributing to the understanding of firm heterogeneity, explaining such heterogeneity per se has never been a central explanatory task of these approaches. However, while the Machlup view was still holding sway among economists (well into the 1990s), dissenting economists and management scholars highlighted that heterogeneity among firms could be understood in terms of differential capability—an idea that helped them to explain firm boundaries (see much of the work of O&M blogger Richard Langlois), competitive heterogeneity in a population of firms (evolutionary economics), and competitive advantage (the resource-based view in strategy.
However, while management research has done much to advance the notion of intra-industry heterogeneity, it may have been less forthcoming with respect to theorizing the antecedents of such heterogeneity. Most work on such antecedents has highlighted cognitive a variables, such as managerial cognition and absorptive capacity, and variables related to skill levels and the efficiency of routines. Surprisingly, virtually no work in management research has linked differential capability to organizational design (e.g., the structures of communication, delegation, and incentives) or even to the human capital characteristics of firms’ workforces. (more…)
| Peter Klein |
Ronald Coase passed away today at the age of 102. One of the most influential economists of the 20th century, perhaps of all time. His “Problem of Social Cost” (1960) has 21,692 Google Scholar cites, and “The Nature of the Firm” has 24,501. Adam Smith’s Wealth of Nations, summed across editions, has about 30,000. Coase changed the way economists think about the business firm and the way they think about property rights and liability. He largely introduced the concepts of transaction costs, comparative institutional analysis, and government failure. Not all economist have agreed with his arguments and conceptual frameworks, but they radically changed the terms of debate in the economics of law, welfare, industry, and more. He is the key figure in the “new institutional economics” (and co-founder, and first president, of the International Society for New Institutional Economics).
Coase did all these things despite — or because of? — not holding a PhD in economics, not doing any math or statistics, and not, for much of his career, working in an economics department.
We’ve written so much on Coase already, on these pages and in our published work, that it’s hard to know what else to say in a blog post. Perhaps we should just invite you to browse old O&M posts mentioning Coase (including this one, posted last week).
The blogosphere will be filled in the coming days with analyses, reminiscences, and tributes. You can find your favorites easily enough (try searching Twitter, for example). I’ll just share two of my favorite memories. The first comes from the inaugural meeting of the International Society for New Institutional Economics in 1997. After a discussion about the best empirical strategy for that emerging discipline. Harold Demsetz stood up and said “Please, no more papers about Fisher Body and GM!” Coase, who was then at the podium, surprised the crowd by replying, “I’m sorry, Harold, that is exactly the subject of my next paper!” (That turned out to be his 2005 JEMS paper, described here.) A few years later, I helped entertain Coase during his visit to the University of Missouri for the CORI Distinguished Lecture. At lunch we talked about his disagreement with Ben Klein on asset specificity. After the lunch he got up, shook my hand, and announced, with evident satisfaction: “I see all Kleins are not alike.”
| Peter Klein |
O&Mers attending the AoM conference may find these Professional Development Workshops, sponsored by the Academy of Management Perspectives and based on recent AMP symposia, of particular interest:
The first PDW is on “Private Equity” and features presentations on the managerial, strategic, and public policy implications of private equity transactions. Presenters include Robert Hoskisson (Rice University), Nick Bacon (City University London), Mike Wright (Imperial College London), and Peter Klein (University of Missouri). The private equity session takes place Saturday, Aug 10, 2013 from 11:30AM – 12:30PM at WDW Dolphin Resort in Oceanic 5.
The second is on “Microfoundations of Management,” and features presentations from Nicolai Foss (Copenhagen Business School), Henrich Greve (INSEAD), Sidney Winter (Wharton), Jay Barney (Utah), Teppo Felin (Oxford), Andrew Van de Ven (Minnesota), and Arik Lifschitz (Minnesota). The microfoundations session takes place Monday, Aug 12, 2013 from 9:00AM
– 10:30AM at WDW Dolphin Resort in Oceanic 5
| Dick Langlois |
The title of this paper, by Laura Alfaro, Paola Conconi, Harald Fadinger, and Andrew F. Newman, caught my eye. Then the abstract really caught my attention.
What is the relationship between product prices and vertical integration? While the literature has focused on how integration affects prices, this paper shows that prices can affect integration. Many theories in organizational economics and industrial organization posit that integration, while costly, increases productivity. If true, it follows from firms’ maximizing behavior that higher prices cause firms to choose more integration. The reason is that at low prices, increases in revenue resulting from enhanced productivity are too small to justify the cost, whereas at higher prices, the revenue benefit exceeds the cost. Trade policy provides a source of exogenous price variation to assess the validity of this prediction: higher tariffs should lead to higher prices and therefore to more integration. We construct firm-level indices of vertical integration for a large set of countries and industries and exploit cross-section and time-series variation in import tariffs to examine their impact on firm boundaries. Our empirical results provide strong support for the view that output prices are a key determinant of vertical integration.
The surprising part is not the empirical result, which is interesting. The surprising part is that the underlying theory of vertical integration in the paper is no more sophisticated than what’s in the abstract: vertical integration is always more efficient than using the market, because a lot of people like Williamson and Hart and Moore have said so. Since integration implies fixed costs, firms (in perfect competition) won’t engage in this wonderful and indisputably efficient practice unless prices are high enough to cover the fixed costs. Readers of this blog will not need me to tell them what’s wrong with this. But I like the empirical result, which is consistent with my own suspicion that tariffs provide cover for firms to engage in inefficient vertical integration. The right spin on this result may well be the Michael Jensen story: lack of competitive pressure from the product market enables managers to retain earnings, which they spend on buying divisions or integrating into things they could buy more cheaply on the market.
| Nicolai Foss |
When I was a graduate student 20-25 years ago I remember transaction cost economics being routinely mocked by all and sundry for “being static,” “neglecting learning,” and “not saying anything about innovation and entrepreneurs,” in addition, of course, to the usual charges of working with an impoverished and overly cynical view of human nature.
While TCE still highlights opportunism as a key assumption, it is fair to say that over the last decade important work has brought dynamics, learning and innovation within the orbit of TCE. This has mainly been brought about by a coterie — some of which are former students of Oliver Williamson — such as Nicholas Argyres, Kyle Mayer, Todd Zenger, Steve Michael, O&M’s Peter Klein, and last, but certainly not least, Jackson Nickerson.
Jackson is the author of a large number of truly innovative papers in management research and economics, many of which have a TCE bent. Thus, with Todd Zenger he has done important work on envy (and other aspects of social comparison processes) as an antecedent of internal transaction costs, on why firms seem to switch between extremes in their organizational forms, and, again with Zenger, he has pioneered a “problem-solving approach” to economic organization.
My department will feature this extremely original thinker as a speaker in our seminar series on Friday (here). Jackson will present a novel take on the dominant design stream of thinking about industry evolution, building on the US auto industry data base that (his co-authors) Lyda Bigelow and Nick Argyres have successfully exploited in earlier publications. Will be exciting!!
| Dick Langlois |
The title of this paper caught my attention.
“Cognition & Capabilities: A Multi-Level Perspective”
J. P. Eggers and Sarah Kaplan
Academy of Management Annals 7(1): 293-338
Research on managerial cognition and on organizational capabilities has essentially developed in two parallel tracks. We know much from the resource-based view about the relationship between capabilities and organizational performance. Separately, managerial cognition scholars have shown how interpretations of the environment shape organizational responses. Only recently have scholars begun to link the two sets of insights. These new links suggest that routines and capabilities are based in particular understandings about how things should be done, that the value of these capabilities is subject to interpretation, and that even the presence of capabilities may be useless without managerial interpretations of their match to the environment. This review organizes these emerging insights in a multi-level cognitive model of capability development and deployment. The model focuses on the recursive processes of constructing routines (capability building blocks), assembling routines into capabilities, and matching capabilities to perceived opportunities. To date, scholars have focused most attention on the organizational-level process of matching. Emerging research on the microfoundations of routines contributes to the micro-level of analysis. The lack of research on capability assembly leaves the field without a bridge connecting the macro and micro levels. The model offers suggestions for research directions to address these challenges.
The reason it caught my eye is that some 16 years ago I published a paper with exactly the same title (albeit with a different subtitle). Of course, I didn’t approach the issue in exactly the way these authors do, which is obviously close to Nicolai’s work on microfoundations. But I did arguably try to “link the two sets of insights,” and I did not do so “only recently.”
| Peter Klein |
Transaction cost economics, the property-rights approach to the firm, and the judgment-based view all assume that contracting parties cannot sign complete, contingent contracts, in which case firm boundaries would be arbitrary and unimportant. TCE tends to attribute incompleteness to bounded rationality, while the judgment-based view appeals to Knightian uncertainty and subjectivism to describe markets for judgment are incomplete. The property-rights approach of Grossman, Hart, and Moore did not have an explicit theory of incompleteness, which critics such as Maskin and Tirole saw as a major weakness.
Oliver Hart has written a series of recent papers on “reference points” as a new explanation for incompleteness. The newest, released today as an NBER working paper (with Maija Halonen-Akatwijuka), is the most explicit. It argues that parties deliberately leave gaps in contracts because explicit clauses can make it more difficult for parties to parties to renegotiate after the fact. Check it out and see what you think.
More is Less: Why Parties May Deliberately Write Incomplete Contracts
Maija Halonen-Akatwijuka, Oliver D. Hart
NBER Working Paper No. 19001, April 2013
Why are contracts incomplete? Transaction costs and bounded rationality cannot be a total explanation since states of the world are often describable, foreseeable, and yet are not mentioned in a contract. Asymmetric information theories also have limitations. We offer an explanation based on “contracts as reference points”. Including a contingency of the form, “The buyer will require a good in event E”, has a benefit and a cost. The benefit is that if E occurs there is less to argue about; the cost is that the additional reference point provided by the outcome in E can hinder (re)negotiation in states outside E. We show that if parties agree about a reasonable division of surplus, an incomplete contract can be strictly superior to a contingent contract.
| Peter Klein |
My old classmate, fellow Oliver Williamson student, and coauthor Howard Shelanski has been nominated to head the Office of Information and Regulatory Affairs (the post typically described as Regulation Czar). Howard was in the joint PhD-JD program at Berkeley, went on to clerk for Antonin Scalia, joined the faculty at Berkeley’s School of Law, and served in a number of regulatory posts before moving to Georgetown. He currently heads the FTC’s Bureau of Economics.
Howard’s a super-smart guy, whom I’d describe as an antitrust moderate (unlike me, an anti-antitrust extremist). He’s sympathetic to “post Chicago” antitrust theory and policy, but more of a nuts-and-bolts, case-by-case guy. I’m not a fan Cass Sunstein, current head of the OIRA, and I expect to like Howard’s performance much better. Howard doesn’t share Sunstein’s enthusiasm for behavioral analysis, for example, as seen in an interview last December, where he said this about the role of behavioral economics in antitrust:
I think there is a role, but one needs to be very modest and cautious. There has been a lot written and a lot said about how behavioral economics fundamentally undermines the models on which we do antitrust analysis. And I think most people involved with antitrust enforcement, most people who think about competition issues, would disagree that there is some fundamental new paradigm shift in the works. But behavioral economics does supply insights into how consumers might respond to certain kinds of information, contracting practices, or pricing schemes. This can be very useful to understanding certain kinds of market performance and has led to greater modesty about imputing perfect foresight or rationality to consumers.
But one needs to understand that that is not the sign of a broader behavioral economics revolution in antitrust.
My general feelings about regulatory czars are well summarized by this passage from Fiddler on the Roof, quoted today by Danny Sokol in the same context:
Young Jewish Man: Rabbi, may I ask you a question?
Rabbi: Certainly, my son.
Young Jewish Man: Is there a proper blessing for the Tsar?
Rabbi: A blessing for the Tsar? Of course! May God bless and keep the Tsar . . . far away from us!
| Peter Klein |
The new issue of the Academy of Management Perspectives features a symposium, edited by Mike Wright, on “Private Equity: Managerial and Policy Implications.” The symposium includes “Private Equity, HRM, and Employment” by Mike with Nick Bacon, Rod Ball, and Miguel Meuleman; “The Evolution and Strategic Positioning of Private Equity Firms” by Robert E. Hoskisson, Wei Shi, Xiwei Yi, and Jing Jin; and “Private Equity and Entrepreneurial Governance: Time for a Balanced View” by John L. Chapman, Mario P. Mondelli, and me. The symposium came out very nicely, if I may say so, covering a variety of strategic, entrepreneurial, and organizational issues related to private equity firms and companies receiving private equity finance.
In his introduction Mike highlights five main contributions:
First, the papers address the need to consider the systematic evidence on the managerial and strategic aspects of PE, in relation to both portfolio firms and PE firms, which has been largely fragmented if not nonexistent. Second, the papers analyze the impact of PE during economic downturns and demonstrate the underlying resilience of PE-backed portfolio firms. Third, the symposium provides an opportunity to develop insights that compare the managerial impact of PE with different forms of ownership and governance. Fourth, the articles in this symposium highlight the heterogeneity of the private equity phenomenon. Finally, in the context of continuing public attention to PE, which has been heightened by the U.S. presidential race and the global recession, the evidence presented in this symposium paints a rather more positive view than the hyperbole of some of the industry’s critics would suggest. Taken together, these contributions indicate a need for caution in attempts to tighten the regulation of PE lest the economic, financial, and social benefits be lost.
| Peter Klein |
“Not only do we manufacture here at home, we also economize on bounded rationality while simultaneously safeguarding transactions against the hazards of opportunism!”
| Dick Langlois |
The idea of attention as a scarce resource goes back at least to Herbert Simon and Nelson and Winter. I hadn’t seen much application of this idea in a while until I ran across this interesting paper called “Rational Inattention and Organizational Focus” by Wouter Dessein, Andrea Galeotti, and Tano Santos. Here’s the abstract:
We examine the allocation of scarce attention in team production. Each team member is in charge of a specialized task, which must be adapted to a privately observed shock and coordinated with other tasks. Coordination requires that agents pay attention to each other, but attention is in limited supply. We show how organizational focus and leadership naturally arise as the result of a fundamental complementarity between the attention devoted to an agent and the amount of initiative taken by that agent. At the optimum, all attention is evenly allocated to a select number of “leaders”. The organization then excels in a small number of focal tasks at the expense of all others. Our results shed light on the importance of leadership, strategy and “core competences” in team production, as well as new trends in organization design. We also derive implications for the optimal size or “scope” of organizations: a more variable environment results in smaller organizations with more leaders. Surprisingly, improvements in communication technology may also result in smaller but more balanced and adaptive organizations.
Apparently, Dessein has been working on attention models for some time, though I hadn’t noticed. (But, of course, Peter had.) I should also note that this model is similar in spirit to the work of Sharon Gifford, now 20 years old, which Dessein et al. do not cite.
| Peter Klein |
That’s the title of a new NBER paper by Philippe Aghion, Nicholas Bloom, and John Van Reenen, indicating that organization design, from the perspective of incomplete-contracting theory, continues to be a hot topic among the top economists. Like all NBER papers this one is gated, but intrepid readers may be able to locate a freebie.
Incomplete Contracts and the Internal Organization of Firms
Philippe Aghion, Nicholas Bloom, John Van Reenen
NBER Working Paper No. 18842, February 2013
We survey the theoretical and empirical literature on decentralization within firms. We first discuss how the concept of incomplete contracts shapes our views about the organization of decision-making within firms. We then overview the empirical evidence on the determinants of decentralization and on the effects of decentralization on firm performance. A number of factors highlighted in the theory are shown to be important in accounting for delegation, such as heterogeneity and congruence of preferences as proxied by trust. Empirically, competition, human capital and IT also appear to foster decentralization. There are substantial gaps between theoretical and empirical work and we suggest avenues for future research in bridging this gap.
| Peter Klein |
It was designed in 1854 for the New York and Erie Railroad and reflects a highly decentralized structure, with operational decisions concentrated at the local level. McKinsey’s Caitlin Rosenthal describes it as an early attempt to grapple with “big data,” one of today’s favored buzzwords. See her article, “Big Data in the Age of the Telegraph,” for a fascinating discussion. And remember, there’s little new under the sun (1, 2, 3).
| Peter Klein |
Armen Alchian passed away this morning at 98. We’ll have more to write soon, but note for now that Alchian is one of the most-often discussed scholars here at O&M. A father of the “UCLA” property-rights tradition and a pioneer in the theory of the firm, Alchian wrote on a dizzying variety of topics and was consistently insightful and original.
Alchian was very intellectually curious, always pushing in new directions and looking for new understandings, without much concern for his reputation or legacy. One personal story: I once asked him, as a naive and somewhat cocky junior scholar, how he reconciled the team-production theory of the firm in Alchian and Demsetz (1972) with the holdup theory in Klein, Crawford, and Alchian (1978). Aren’t these inconsistent? He replied — politely masking the irritation he must have felt — “Well, Harold came to me with this interesting problem to solve, and we worked up an explanation, and then, a few years later, Ben was working on a different problem, and we started talking about it….” In other words, he wasn’t thinking of developing and branding an “Alchian Theory of the Firm.” He was just trying to do interesting work.
Updates: Comments, remembrances, resources, links, etc.:
- Robert Higgs
- David Henderson (1, 2)
- Jerry O’Driscoll
- Alex Tabarrok
- Doug Allen
- Dan Benjamin
- A 1996 Alchian symposium (gated)
- Alchian and Woodward’s review of Williamson (1985): “The Firm Is Dead, Long Live the Firm”
| Peter Klein |
The econ and strategy literatures on multinational firms have grown dramatically since the pioneering works of Caves, Casson, Teece, and others. Besides established journals like the Journal of International Economics and Journal of International Business Studies, there is the new Global Strategy Journal and plenty of space in the general-interest journals for issues dealing with multinationals.
Pol Antràs and Stephen Yeaple have written a new survey paper for the Handbook of International Economics, 4th edition, and it’s available as a NBER working paper, “Multinational Firms and the Structure of International Trade.” The review focuses on the mainstream economics literature but should be useful for management and organization scholars as well — particularly section 7 on firm boundaries which includes both transaction cost and property rights theories. Here’s the abstract:
This article reviews the state of the international trade literature on multinational firms. This literature addresses three main questions. First, why do some firms operate in more than one country while others do not? Second, what determines in which countries production facilities are located? Finally, why do firms own foreign facilities rather than simply contract with local producers or distributors? We organize our exposition of the trade literature on multinational firms around the workhorse monopolistic competition model with constant-elasticity-of-substitution (CES) preferences. On the theoretical side, we review alternative ways to introduce multinational activity into this unifying framework, illustrating some key mechanisms emphasized in the literature. On the empirical side, we discuss the key studies and provide updated empirical results and further robustness tests using new sources of data.
The NBER version is gated but I’m sure our intrepid readers can dig up an open-access copy.
| Benito Arruñada |
Underprovision of Public Registries?
Organizing registries is harder than it seems. Governments struggled for almost ten centuries to organize reliable registries that could make enabling rules safely applicable to real property. Similarly, company registries were adopted by most governments only in the nineteenth century, after the Industrial Revolution. Moreover, though most countries have now been running property and company registries for more than a century, only a few have succeeded in making them fully functional: in most countries, adding a mortgage guarantee to a loan does not significantly reduce its interest rate.
US registries show that these difficulties do not only affect developing countries. Many US registries are stunted, shaky institutions whose functions are partly provided by private palliatives. In land, the public county record offices have been unable to keep up with market demands for speed and uniform legal assurance. Palliative solutions such as title insurance duplicate costs only to provide incomplete in personam guarantees or even multiply costs, as Mortgage Electronic Registry Systems (MERS) did by being unable to safely and comprehensively record mortgage loan assignments. In company registries, their lack of ownership information means that they are of little help in fighting fraud, and their sparse legal review implies that US transactions require more extensive legal opinions. In patents, a speed-oriented US Patent and Trademark Office combines with a strongly motivated patent bar to cause an upsurge of litigation of arguably dangerous consequences for innovation.
The introduction of registries has often been protracted because part of the benefits of registering accrue to others. They also have to compete with private producers of palliative services (i.e., documentary formalization by lawyers and notaries) who usually prefer weak or dysfunctional registries, as they increase the demand for their services. Moreover, most legal resources, including the human capital of judges, scholars, and practitioners is adapted to personal instead of impersonal and registry-mediated exchange.
Information and communication technologies have opened new possibilities for impersonal trade, thus increasing the demand for the institutions, such as registries, that support impersonal trade. Economic development therefore hinges, more than ever, on governments’ ability to overcome these difficulties, which are allegedly holding back the effective registries needed to enable impersonal exchange and exhaust trade opportunities.