Jiao Luo

The failure of private regulation: Elite control and market crises in the Manhattan banking industry

In this paper, we develop an account of the failure of private market-governance institutions to maintain market order by highlighting how control of their distributional function by powerful elites limits their regulatory capacity. We examine the New York Clearing House Association (NYCHA), a private market-governance institution among commercial banks in Manhattan that operated from 1853 to 1913. We find that the NYCHA, founded to achieve coordinating benefits among banks and to limit the effect of financial panics, evolved at the turn of the twentieth century into a device for large, elite market players to promote their own interests to the disadvantage of rival groups that were not members. Elites prevented the rest of the market from having equal opportunities to participate in emergency loan programs during bank panics. The elites’ control not only worsened the condition of the rest of the market by allowing non-member banks to fail; it also diminished the influence of the NYCHA and escalated market crises as bank failures spread to member banks. As a result, crises developed to an extent that exceeded the control of the NYCHA and ended up hurting even elites’ own interests. This paper suggests that institutional stability rests on a deliberate balance of interests between different market sectors and that, without such a balance, the distributional function of market-governance institutions plants the seeds of institutional destruction.

The Economic Case for CSR: The Comparative Efficiency of For-Profit Firms in the Market for Social Goods

We develop a formal model of CSR, with both a for-profit and a non-profit organization providing social goods to needy recipients and competing for resources from consumers. We show that CSR results in financial benefit if it is either related to the firm’s core business, or non-overlapping with non-profit efforts, but only leads to social benefit if both conditions apply, with these relationships being moderated by the firm’s core business capabilities. Our paper thus makes a case for CSR based on the comparative efficiency of for-profits in providing social goods relative to non-profits, while also highlighting the potential divergence between the financial and social impact of CSR. In addition, it offers new insights into the heterogeneity of CSR, and the role of non-profits and hybrids.

Institutional rivalry and the entrepreneurial strategy of economic development: Business incubator foundings in three states

It is now widely accepted that the institutional interventions of states are a foundational influence on the dynamics of organizational forms. But why do states act? In this chapter, we apply the behavioral theory of the firm to develop an explanation of state actions based on the fact that they are boundedly rational rivals. The instrument of state competition we examine is the founding of business incubators, a primary tool in the entrepreneurial strategy of economic development. We predict that business incubators are more likely to be founded in a state when (1) the state falls behind comparable states in the indicators of economic development; (2) the state falls behind its own historical trajectories of economic development; (3) the state has slack resources in the form of budget surpluses; (4) comparable and rival states adopt incubators as a development strategy. Our analysis of incubator foundings in New York, New Jersey, and Pennsylvania throughout 1980–2004 supports all of these propositions.

Private Action in Public Interest: The Comparative Governance of Social Issues

We develop a theoretical framework to define the comparatively efficient organizational form for dealing with a social issue, based on the market frictions associated with it. Specifically, we argue that for-profits have an advantage in undertaking innovation and coordinating production economies, non-profits in playing a fiduciary role given ex post information asymmetry, self governing collectives in dealing with bounded externalities through private ordering, and state bureaucracies in governing general externalities. We build on these arguments to develop a mapping between combinations of these market frictions and the comparatively efficient arrangements to govern them, including a variety of hybrid arrangements such as private-public partnerships, social enterprises, corporate social responsibility, etc. Our framework thus contributes to research in strategy, organizations, and public policy.