Barak D. Richman

Transaction Cost Economics: An Assessment of Empirical Research in the Social Sciences

This paper provides a comprehensive review of the empirical literature in transaction cost economics (TCE) across multiple social science disciplines and business fields. We show how TCE has branched out from its economic roots to examine empirical phenomena in several other areas. We find TCE is increasingly being applied not only to business-related fields such as accounting, finance, marketing, and organizational theory, but also to areas outside of business including political science, law, public policy, and agriculture and health. With few exceptions, however, the use of TCE reasoning to inform empirical research in these areas is piecemeal. We find that there is considerable support of many of the central tenets of TCE, but we also observe a number of lingering theoretical and empirical issues that need to be addressed. We conclude by discussing the implications of these issues and outlining directions for future theoretical and empirical work.

ORGANISATIONAL RESPONSES TO DISCONTINUOUS INNOVATION: A CASE STUDY APPROACH

Research that examines entrant-incumbent dynamics often points to the organisational limitations that constrain incumbents from successfully pursuing new technologies or fending off new entrants. Some incumbents are nevertheless able to successfully implement organisational structures and develop routines that overcome these institutional constraints. We provide a case-study analysis of how three firms — Motorola, IBM and Kodak — responded to “discontinuous” innovations and the associated structural and organisational limitations that are typical to incumbent organisations. Each firm was able to capture gains from new technologies and develop profitable products in emerging markets, although their abilities to sustain these gains varied due to subsequent organisational changes. Drawing from these case studies, we synthesise how firms can institute organisational strategies to continue to capture gains from disruptive innovations. A schema suggests that particular organisational strategies are comparatively optimal for corresponding points along an innovation lifecycle.

Modeling Supreme Court Strategic Decision Making: The Congressional Constraint

This paper addresses the contradictory results obtained in Segal (1997) and Spiller and Gely (1992) concerning the impact of institutional constraints on the US Supreme Court decisionmaking. by adapting the Spiller and Gely model to the data set utilized by Segal. The major findings are as follows: first, by adapting the Spiller and Gely (1992) maximum likelihood model to the Segal (1997) dataset, we find support for the hypothesis that the Court adjusts its decisions to Presidential and congressional preferences. Second, data from 1947-92 indicate that the average probability of the Court being constrained has been approximately one third. Third, we show that the results obtained in Segal (1997) are the product of biases introduced by a misspecified econometric model. Finally, the estimation highlights the usefulness of Krehbiel’s model of legislative decision-making.

Firms, Courts, and Reputation Mechanisms: Towards a Positive Theory of Private Ordering

This paper formulates a positive model that predicts when parties will employ private ordering to enforce their agreements. The typical enforcement mechanism associated with private ordering is the reputation mechanism, when a merchant community punishes parties in breach of contract by denying them future business. The growing private ordering literature argues that these private enforcement mechanisms can be superior to the traditional, less efficient enforcement measures provided by public courts. However, previous comparisons between public and private contractual enforcement have presented a misleading dichotomy by failing to consider a third enforcement mechanism: the vertically integrated firm. This paper develops a model that comprehensively addresses three distinct types of enforcement mechanisms - firms, courts, and reputation-based private ordering. The model rests on a synthesis of transaction cost economics, which compares the efficiencies of firms versus markets, and the private ordering literature, which compares the efficiencies of public courts versus private ordering. It hypothesizes that private ordering will arise when agreements present enforcement difficulties, high-powered market incentives are important, and the costs of entry barriers are low. The paper then compares the models predictions to documented instances of private ordering, and this illustrative test suggests that the model is consistent with empirical studies in the private ordering literature.

How Community Institutions Create Economic Advantage: Jewish Diamond Merchants in New York

This article argues that Jewish merchants have historically dominated the diamond industry because of their ability to reliably implement diamond credit sales. Success in the industry requires enforcing executory agreements that are beyond the reach of public courts, and Jewish diamond merchants enforce such contracts with a reputation mechanism supported by a distinctive set of industry, family, and community institutions. An industry arbitration system publicizes promises that are not kept. Intergenerational legacies induce merchants to deal honestly through their very last transaction, so that their children may inherit valuable livelihoods. And ultra-Orthodox Jews, for whom participation in their communities is paramount, provide important value-added services to the industry without posing the threat of theft and flight.

Lessons From India In Organizational Innovation: A Tale Of Two Heart Hospitals

Recent discussions in health reform circles have pinned great hopes on the prospect of innovation as the solution to the high-cost, inadequate-quality U.S. health system. But U.S. health care institutions-insurers, providers, and specialists-have ceded leadership in innovation to Indian hospitals such as Care Hospital in Hyderabad and the Fortis Hospitals around New Delhi, which have U.S.-trained doctors and can perform open heart surgery for

A Cautious Path Forward on Accountable Care Organizations

6,000 (compared to

Reassessing ACOs and Health Care Reform

100,000 in the United States). The Indian success is a window into Americas stalemate with inflating costs and stagnant innovation.

Administrative Costs Associated With Physician Billing and Insurance-Related Activities at an Academic Health Care System

The wave of new Accountable Care Organizations (ACOs), spurred by financial incentives in the Affordable Care Act, could become the latest chapter in the steady accumulation of market power by hospitals, health care systems, and physician groups. The main purpose behind forming many ACOs may not be to achieve cost savings but instead to strengthen negotiating power over purchasers in the private sector. This would be an unfortunate sequel to the waves of mergers in the 1990s when health care entities sought to counter market pressure from managed care organizations. The possibility that ACOs might further concentrate health care markets brings new urgency to understanding why provider monopolies are pernicious and to considering how government can ensure that ACOs pursue efficiency rather than market power.

Achieving Universal Coverage Without Turning to a Single Payer: Lessons From 3 Other Countries

Accountable care organizations (ACOs) were the cornerstone of the novel payment strategies for Medicare reform under the Affordable Care Act (ACA). The ACO initiative was intended as an experiment in health policy, and according to recent findings, the experiment so far has failed to produce needed efficiencies. This begs the important question of whether the theory underlying the ACO strategy is sound. We review recent findings, repeat prior warnings that ACOs could harm competition by consolidating provider markets, and recommend that CMS pursue innovative models of health care delivery that do not rely on high-cost infrastructures that form the backbone of too many ACOs.