Alchian and Demsetz (1972), Dallas Cowboys Edition

27 September 2009 at 2:18 pm 6 comments

| Peter Klein |

In Alchian and Demsetz’s (1972) nexus-of-contracts approach to the firm, bosses don’t necessarily hire workers; workers may just as easily hire bosses. Recall Cheung’s (1983, p. 8) famous illustration: “My own favorite example is riverboat pulling in China before the communist regime, when a large group of workers marched along the shore towing a good-sized wooden boat. The unique interest of this example is that the collaborators actually agreed to the hiring of a monitor to whip them.” In Alchian and Demsetz’s example, the employee can “fire” his employer by quitting, just as I can “fire” my grocer by shopping at a different store.

Here’s the Onion applying this logic to the NFL’s Dallas Cowboys:

IRVING, TEXAS — In an attempt to cut the franchise’s losses and “move forward in a positive direction,” the Dallas Cowboys severed ties with controversial owner Jerry Jones Monday, ending their tumultuous 20-year relationship with the divisive figure.

According to sources within the Cowboys organization, the decision to release Jones was influenced by the lack of any playoff victories in more than 12 years, the owner’s distracting sideline antics, and his selfish, “me first” attitude, which many said was having a cancerous effect on the clubhouse.

“We value Jerry’s contributions to the Cowboys over the past two decades, but it has become painfully clear that we just don’t share the same priorities,” Cowboys public relations director Richard Dalrymple said. “This wasn’t an easy choice to make, but we’re confident it is a decision that can only make our team better.”

I can see it now: “An NFL owner has no power of fiat, no authority, no disciplinary action any different in the slightest degree from ordinary market contracting between any two football players. . . .”

Entry filed under: - Klein -, Theory of the Firm.

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6 Comments Add your own

  • 1. Jongwook Kim  |  28 September 2009 at 1:41 am

    Maybe owners like Jerry Jones (and George Steinbrenner) need to be saved from themselves, from meddling too much, etc. I suppose you can always argue that since he owns the Cowboys, he can do what he wants. And who is to say otherwise? If fans don’t like how he runs HIS football team, then they can indeed fire him by becoming Redskins fans. Well, maybe not the Redskins, but NE Patriots or NY Giants fans, anyone?

    However, as sports fans with years if not decades of emotional attachment, this is not possible. And, perhaps there needs to be someone to represent the “community” of Cowboy fans out there to tell Jones to not meddle. Just like in Germany, for instance, where many stakeholders are allowed to participate in a firm’s management to an extent not possible in the U.S.

    All in all, I think Cowboys fans get the owner they deserve, just like Yankee fans have the owner that we deserve. As a Yankee fan, I live with it. Sometimes it’s tough, but it looks like successive failures and the poor health of the Boss have allowed for a now less impetuous front office to use their wads cash wisely. I guess Jerry Jones will eventually come to his senses, but hopefully not too soon.

  • 2. Peter Klein  |  28 September 2009 at 7:22 am

    Jongwook, sounds like the Mahoney stakeholder approach to the firm. Cowboys fans have made relationship-specific investments in the team — that blue-and-silver rec room, for example — that could, in Joe’s approach, give them some residual control and cash flow rights. (Not sure if emotional attachment, as an inalienable human asset, counts!)

  • 3. Jongwook Kim  |  28 September 2009 at 1:31 pm

    Well, emotional attachment keeps ’em watching and paying… but since “exit” is not an option, there is only “voice” left as a way to make your displeasure felt. Not sure how fans can effectively use voice especially if they’re blown away by shiny new stadiums and things like that. Which leads me to conclude that teams understand that loyalty (fandom) is a trap, to be exploited; e.g., how the Tribune treats Cubs fans. At least Jerry Jones tries to win; he’s just an ineffective meddler with an ego.

  • 4. TRUTH ON THE MARKET » The NFL and the Theory of the Firm  |  28 September 2009 at 5:11 pm

    […] those who prefer the lighter side of things, here is the Onion (HT: Peter Klein) invoking an Alchian and Demsetz (1972) angle on the Dallas Cowboys and their owner Jerry Jones: […]

  • 5. Danny L. McDaniel  |  6 October 2009 at 5:19 pm

    Whoever signs the paychecks and pay the bills has the power and control – no matter how you want to dream otherwise. This is one time a fantasy has got the better part of common-sense. Example, Jerry Jones can own the Dallas Cowboys as long as he is still living on this earth. Professional football players have a very short shelf and the reputation of his team will sale itself. After all, no body has been on the sidelines longer than Mr. Jones on the current Cowboy rooster. Fire Jerry Jones?! Ya and my favorite NFL team the Detroit Lions might win the Super Bowl this year too! Not!

    Danny L. McDaniel
    Lafayette, Indiana

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