Posts

Showing posts with the label governance structure

Decision Making as Output and Bounded Rationality

-
  The classical economics theories proceed on the assumption of rational agents. Rationality implies the economic agents undertake actions or exercise choices based on the cost-benefit analysis they undertake. The assumption further posits that there exists no information asymmetry and thus the agent is aware of all the costs and benefits associated with the choice he or she has exercised. The behavioral school contested the decision stating the decisions in practice are often irrational. Implied there is a continuous departure from rationality. Rationality in the views of the behavioral school is more an exception to the norm rather a rule. The past posts have discussed the limitations of this view by the behavioral school. Economics has often posited rationality in the context in which the choices are exercised rather than theoretical abstract view of rational action. Rational action in theory seems to be grounded in zero restraint situation yet in practice, there are numerous restra
Post a Comment
Read more

What Makes a Successful Joint Venture?

-
  More than 15 years back, there was an important piece published in Harvard Business Review about the joint ventures. The piece titled “Launching a World Class Joint Venture” was written by James Bamford, David Ernst and David Fubini was published in HBR in February 2004. Like other classics, this piece retains its importance and value even today. Joint ventures pose significant challenges to the firms as they move into different markets. The objective might be essentially to create a temporary vehicle in testing waters of the new river but the challenges it brings to the tables often drowns the objective and the end result may end up very differently from what was sought to be achieved. Therefore, revisiting the tenets posed by this article is worth the time.   The article posits challenges for the joint venture to emerge in four different areas. It examines each of these areas and then goes to suggest how the firms can work in resolving the conflicts that emerge in building the
Post a Comment
Read more

Existence of Firm is Rational!

-
Classical and neoclassical theories stressed the primacy of the markets for transactions. To theorist of both the schools, the invisible hand manifesting through the price mechanism, resolves the imbalances that exist arising of the mismatch of demand and supply. Yet the ground realities suggested a sort of paradox. Of the total transactions that were observed in real life, the market based transactions occupied a smaller share. Most transactions seem to be occurring internally within an organization. The presence of the firm could not satisfactorily be explained by the early theorists. Profit maximization and utility maximization the key drivers of the neoclassical revolution seem to find limits to this power. The paradox was resolved by Ronald Coase who laid the foundations for transaction cost theory. To Coase, “ market prices govern the relationships between firms but within a firm decisions are made on a basis different from maximizing profit subject market prices. Within t
Post a Comment
Read more