10-19-09 - Economics 448 Class Notes Armen Alchian and...

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Economics 448 – Class Notes – 10/19/09 Armen Alchian and Harold Demsetz (1972) "Production, INformation Costs, and Economic Organization" Klein, Crawford, and Alchian Appropriable Quasi-Rents (Alchian and Demsetz) different view for what a firm does and why firms exists Principal-Agent Problems Broader Agent problems How do we get people to do what we want them to do How do we contract with people to get people to do what we want them to do Famous Article – Grocer Question o Simple but profound – what is the difference between the relationship a customer has with his or her grocer (Giant Eagle for example) and the relationship that the grocer has with an employee. o You Grocer  Employee You and the grocer Grocer and the employee
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What is the difference between you and the grocer and the grocer and employee Grocer and You : o If you don’t like your grocer, I can leave my grocer and go to a different grocer o No contract between grocer and you o Output o Supervision of quality of good or service o Different signal between grocer and you We go to the store and see something bad, we just leave the grocer Grocer and Employee : o Employee can quit o Employee can fire the employee o But the employee might have a hard time getting a new job o Contract between grocer and employee (wage) o Employee is an Input o Element of supervision o Supervision of employees o Different signal between grocer and employee If the grocer sees something bad, they grocer wants to find out who did the bad thing The firm replaces the market which author said this Ronald Coase Coase the firm is the supersession of the price mechanism. Alchian and Demsetz
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This note was uploaded on 01/07/2010 for the course ECON 448 taught by Professor Nonnenmacher during the Fall '07 term at Allegheny.

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10-19-09 - Economics 448 Class Notes Armen Alchian and...

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