Mark Casson

A Theory of Cooperation in International Business

To what extent are cooperative ventures really cooperative? What exactly is meant by cooperation in this context? In international business, the term cooperative venture is often used merely to signify some alternative to 100 per cent equity ownership of a foreign affiliate: it may indicate a joint venture, an industrial collaboration agreement, licensing, franchising, subcontracting, or even a management contract or countertrade agreement. It is quite possible, of course, to regard such arrangements as cooperative by definition, but this fudges the substantive issue of just how cooperative these arrangements really are.

The economics of the family firm

Abstract The paper investigates how far the study of family firms constitutes a subject in its own right. It is argued that family ownership per se does not require the development of a special theory of family firms. It is suggested that the uniqueness of the family firm resides in the strength of the dynastic motive, which may strengthen trust between family members, but discourages the recruitment of non-family members and so inhibits the growth of the firm. The strength of the dynastic motive varies across family firms. The paper summarises two recent approaches to the economic theory of family firms which attempt to formalise these insights, and demonstrates the complementarities between them.

Entrepreneurship and Social Capital Analysing the Impact of Social Networks on Entrepreneurial Activity from a Rational Action Perspective

Governments have invested heavily in building local and regional entrepreneurial networks in order improve economic performance and regeneration. However, there are many types of network, and different types of network are appropriate for different purposes. Some types of network are most useful in the early stages of entrepreneurial activity and others at later stages. Careful definitions are necessary in order to analyse the role of networks in generating interpersonal and inter-organizational trust, and hence in augmenting the stock of social capital. Effective networks are normally intermediated by reputable trust-brokers. The reputation of government gives it a significant role as a trust-broker, but there is a danger that its reputation may be undermined when it extends its activities into areas where it lacks the competence to intervene effectively.

The Oxford Handbook of Entrepreneurship

Book review by William H. A. Johnson. Casson, Mark et al., eds. The Oxford Handbook of Entrepreneurship, New York, NY: Oxford University Press, 2006. ISBN 9780199288984

Why are Firms Hierarchical

Firms are hierarchical because hierarchy facilitates both monitoring and control. Monitoring is readily explained in terms of agency costs, but control is not. Control relations between superiors and subordinates emerge naturally only when the superior has decisive information and the subordinate does not. When decisiveness does not naturally occur, it may nevertheless be imposed in order to reduce communication costs. The degree of decisiveness reflects the pattern of volatility in the firms environment. The theory connects the volatility of the environment to the degree of hierarchy in the organisation. Recent changes in volatility can be used to explain contemporary demands for flatter organizational structures.

Transaction Costs and the Theory of the Multinational Enterprise

The theory of internalisation is now widely accepted as a key element in the theory of the multinational enterprise (MNE) (see Chapter 1). Internalisation is a general theory of why firms exist, and without additional assumptions it is almost tautological. To make the theory operational it is necessary to specify assumptions about transaction costs for particular products and for trade between particular locations. It is typically asserted that: (1) It is very costly to license unpatentable know-how, so that the market for know-how must be internalised. This leads to the vertical integration of production and R & D, and, because of the ‘public good’ characteristics of know-how, to the consequent horizontal integration of production in different locations. (2) It is difficult to specify and enforce long-term futures contracts, so that the market for raw materials used by capital-intensive production processes must be internalised by backward integration. (3) Ad valorem tariffs, international tax differentials and foreign exchange controls create incentives for transfer-pricing, which are most easily exploited through internalisation.

Entrepreneurship, Business Culture and the Theory of the Firm

This chapter is concerned with the relationship between the entrepreneur and the firm. It is written from the perspective of the modern economic theory of the entrepreneur, which is explained in the first part of the chapter. This perspective is rather different from that which dominates the small business literature, as reflected in some of the other chapters in this handbook.

The Theory of Foreign Direct Investment

The concept of foreign direct investment (FDI) is a rather ambiguous one. To begin with, is the foreign investor the individual whose postponement of consumption enables the investment to be financed? Or is the investor the firm whose shares are owned by the individual concerned, and which owns the real assets on his behalf? If the investor is the firm then by what rules of nationality is it established that the firm is a foreign one — in particular, is there a meaningful economic criterion for the nationality of a multinational enterprise (MNE)?

Institutional Economics and Business History: A Way Forward?

Analytical business history requires a synthesis of theories of transaction cost, entrepreneurship and firm-specific competence. These theories can be integrated using the concept of information cost. Economies of information cost explain the emergence of market-making intermediation in capitalist economies. Economists have been so preoccupied with production that they have ignored the role of market-making intermediation, despite the fact that market-making intermediation has a crucial impact on the strategy and organisation of the firm. This essay charts the historical emergence of market-making intermediation, and analyses its effects using a diagrammatic technique specially developed for this purpose. It is suggested that the concept of information cost, and the techniques of analysis allied with it, offer a useful way forward for business historians.

Economics of International Business

Economics of International Business sets out a new agenda for international business research. Mark Casson asserts that it is time to move the subject on from sterile debates about transaction cost economies and resource-based theories of the firm. Instead of focusing on the individual firm, the new agenda focuses on the global systems view of international business. A static view of the firm’s environment is replaced by a dynamic view which highlights the volatility of the international business environment. Coping with volatility requires entrepreneurial skills, flexibility and the need to synthesize information on a global basis. To co-ordinate the global system properly, entrepreneurs must co-operate through social networks of trust, as well as competing. Constructing a network of joint ventures, it is argued, is simply not enough.