PAM_334_Fall_2008_Lecture_1

PAM_334_Fall_2008_Lecture_1 - PAM3340Fall2008 Lecture1

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PAM 3340 Fall 2008 Lecture 1 Prelim. #1 Thursday Oct. 2 nd Agenda What is a firm? What is a corporation? The firm as conserving on transaction  costs Institutional competition
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What is a Corporation? A corporation is a specific type of firm  (or institution) Think of a firm as a set (or “nexus”) of  contracts Legal “person”: Firm has legal  contracting rights
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What do we mean by a firm? Analysis of the corporation is one  aspect or subfield of law and economics  called “new institutional economics” Firms are sometimes also referred to as  “hierarchies”
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What do we mean by a  firm ? Most people think of a large for-profit  enterprise. In economics, the firm  means  any organizational form . Think  broadly. A firm can be a: Large “open” corporation (our focus) Sole proprietorship Partnership 
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What do we mean by a  firm?  (continued) Mutual  Cooperative Non-profit (Cornell, museum) State-owned enterprise (TVA, Postal  Service) Government-sponsored enterprise Private owned, but still get government  supports Franchise, etc.
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Added  Benefits of corporation (among others): can raise large amounts of  capital Costs of corporate form: agency costs, or the costs of addressing the  agency problem How do shareholders get managers to behave in the interests of  shareholders? Want the managers to work hard with the money you give them— how do you ensure that they are using the money as effective as  they can? Focus on the variety of mechanisms that have evolved to help control  agency costs: called corporate governance
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Added  Mechanisms to control agency costs include: Boards of directors (with outsiders: professors, etc)
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This document was uploaded on 10/26/2011 for the course PAM 3340 at Cornell.

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PAM_334_Fall_2008_Lecture_1 - PAM3340Fall2008 Lecture1

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