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Corporate Charters with Competitive Advantages

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Abstract

Corporate charters, which vest power in a network of control centres, can offer advantages for directors, shareholders and other stakeholders. The author describes how he reduced the cost of capital through the establishment of a "Senate" as a watchdog board to improve investor and director protection. A cybernetic analysis is used to indicate how the involvement of customers, employees, and suppliers in corporate governance, as found in Europe and Japan, can provide competitive advantages and improve self-regulation. A theory of firms, and organizations, based on economizing information processing by individuals is introduced to provide a common foundation for other theories. Cybernetic laws of requisite variety are presented as a basis for designing self-governing social institutions with operating advantages to minimize the role and cost of government while improving the quality of democracy.

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... This paper draws upon the experience of the author to illustrate how the process of de-regulation can be achieved on a gradual incremental basis through the establishment of co-regulators. The Regulator granted the author exemption from the costly process specified to change a company auditor on the basis that the company had amended its constitution to introduce a co-regulator independent of management that provided superior investor protection (Turnbull 2000aTurnbull , 2005a). Ashby's law identifies how variables can be regulated as closely as desired with a requisite variety of controllers. ...
... To be effective as co-regulators to replace CGCs and supplement and/or replace some laws and regulations, shareholders and stakeholders would need to obtain: (i) the information to act; (ii) the will to act; and (iii) the power or capability to act. How this might be achieved is illustrated by the provisions introduced into investment contracts of an unincorporated enterprise established by the author and in the constitution of an Australian startup company in which the majority of shareholders were US residents (Turnbull 2000a). Shareholders in the start-up company JAC Tractor Limited (JTL) approved the new constitution as a means for attracting high risk retail funds internationally and funds from a domestic institutional venture capitalist that might not otherwise have been provided (Turnbull 2002c). ...
... The approach recommended by Senator Murray (1998) removed the power of directors to make decisions where a conflict was involved. The approach used by the author (Turnbull 1993; 2000a) did not remove any powers of the directors except to chair the AGM and manage the voting processes. However, the Senate had power to veto any other activity in which a director had a conflict of interest like determining their remuneration or nomination. ...
Article
Recent turmoil in the financial markets can be explained by the science of governance used by engineers to design the regulatory systems of devices operating in unknown, dynamic environments. Turmoil is the result of insufficient supplementary co-regulators. The laws of governance "absolutely prohibits any direct and simple magnification but does not prohibit supplementation" of regulation. This law creates an imperative for regulators to require that their regulatees establish a requisite variety of co-regulators. It is the stakeholders of regulatees that can provide the requisite variety of co-regulation required to avoid regulatory failure. Many stakeholders would typically include those individuals or organizations that government regulators are created to protect. The introduction of bottom up outcome based co-regulation by relevant stakeholders would result in the partial privatization of regulation. The resulting flexibility would allow regulatees to reduce compliance costs and obtain operating and competitive advantages. The paper identifies how bottom up private sector co-regulation by stakeholders could be introduced on an incremental basis. An example is presented on how a company efficiently raised new equity through changes in its constitution that also allowed the regulator to exempt it from the compliance processes and costs of changing auditors. A requirement for stakeholders to be effective co-regulators to reduce elements of public sector regulation is that they obtain the: (i) information, (ii) will and (iii) capability to act independently of regulatees to protect their own interests and that of the financial system as may be relevant. The role of government and its regulators would change from defining practices and processes to defining outcomes of the stakeholder and system protection required. An outcome based regime would introduce flexibility for regulatees to develop the most efficient and effective practices and process in their particular business to achieve the desired outcomes. A co-regulatory strategy would also reduce the cost to government as stakeholders complemented the monitoring role of regulators and reduced the need for regulators and the courts to take corrective action.
... The approach recommended by Senator Murray (1998) removed the power of directors to make decisions where a conflict was involved. The approach used by author (Turnbull 1993;2000a) did not remove any powers of the directors except to appoint and remunerate the auditor, chair the AGM and manage its voting processes. However, the Senate had power to veto any activity in which a director had a conflict of interest like determining their remuneration or nomination. ...
... Management might want more frequent engagement to achieve operating benefits as stakeholder councils provide a process to organise Just-In-Time delivery of goods, Total Quality Control of products, Six Sigma risk management and product innovations as described by Hippel (1996). These operating and competitive advantages are described in greater detail in Turnbull (1997;2000a;2000b;2000c;2002a, c). ...
... There are compelling advantages and safeguards for shareholders to vote for the changes required in corporate constitutions to obtain these benefits. A point supported by the experience of the author in obtaining shareholder approval to establish a corporate senate and stakeholder councils in a start up venture (Turnbull 1993;2000a). ...
Chapter
Directors of corporations governed by a single board are exposed to (i) reputational risk with personal liability from possessing absolute power to manage their own conflicts of interest and (ii) absence of power to systematically obtain information independently of management on the Strengths, Weaknesses, Opportunities and Threats (SWOT) of either their managers or the business. The removal and/or mediation of unethical conflicts can be achieved by amending corporate constitutions to separate governance powers from the power to manage business operations. Systematic independent information on the SWOT of managers and the business can be obtained by the corporate constitution introducing advisory councils appointed by those individuals on whom the business depends for its existence such as its customers, suppliers and other stakeholders. Besides mitigating the operating, reputational and financial risks of directors and the firm, evidence is provided how stakeholder councils have produced competitive advantages. The changes in corporate constitutions described in the paper empower directors by removing perceptions of unethical conduct and provides them with creditable evidence that they can carry out their fiduciary duties with due care and diligence to monitor managers and the risks of the business.
... Such a hierarchy of boards is included as an option in Figure 1. We describe this architecture as possessing a centralized governance system to distinguish it from firms where shareholders appoint two different boards to separate executive powers from governance powers (Dallas 1997, Hatherly 1994, Melis 2004, Turnbull 2000a). ...
... It is only through a separation of power that control can become distributed to engage stakeholders in a meaningful way. Shareholders would need to amend the corporate constitution to allow them to appoint two boards along the lines established by one of us (Turnbull 2000a). There would be "profit performance" oriented board to manage operations and a "prudential conformance" ...
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The US Financial Crisis Inquiry Commission Report stated: “dramatic failures of corporate governance and risk management at many systemically important financial institutions were a key cause of this crisis.” The Lehman Brothers liquidator’s report and other sources explain the systemic deficiencies in the dominant centralized system of corporate governance. Evidence is provided that: (a) Stakeholders possessed knowledge of both systemic and firm specific risks; (b) Centralized governance denied stakeholders engagement to identify and mitigate risks. This leads to the hypothesis that decentralized governance described as “network” governance, provides a basis to reduce the “key cause” of firm and regulatory failure. The hypothesis is supported by system science that has identified the impossibility of reliably regulating complexity without a requisite variety of communication and control channels. We recommend that regulators introduce network governance to provide a requisite variety of stakeholder boards as co-regulators of large complex firms.
... Financiers have devised ways of dividing corporate powers so as to improve rather than inhibit the profitability and growth of firms. Turnbull (2000a) describes how he introduced such a division of power into the corporate charters of two companies to attract funds that might not otherwise have been provided. The failure of regulators to introduce such checks and balances on a systemic basis is a concern, especially for important financial firms subject to prudential safeguards and/or are considered TBTF or TBTBS. ...
... However, it is rarely the situation that those who have the power to divide power have also the self-interest to do so. Turnbull (2000a) describes an exception where a division of power was introduced to raise venture funds that would not have otherwise have been procured. ...
Article
Banks failed in 2008 because individuals with knowledge of risks were not connected to individuals who had the incentive and power to take corrective action. Evidence of this problem is provided by reports from the Lehman liquidator and The Financial Crisis Inquiry Commission. Improved communications and control within and between banks, their regulators, and stakeholders can be achieved with network governance. Lawmakers and/or regulators can introduce network governance by requiring bank shareholders to amend corporate constitutions to introduce a division of power with checks and balances from stakeholders who can take on the role of supplementary and/or co-regulators. Such decentralized regulatory architecture is how simple living creatures sustain their existence in complex, dynamic and unpredictable environments without suffering communication errors and/or overload. The natural science of communication and control identified in 1948 by Wiener explains why centralized control and communication systems are not found in nature. This science of regulatory systems explains why regulators and large firms fail to reliably manage, regulate or govern complexity. Examples of large network governed firms provide evidence that they obtain sustainable operating advantages over business cycles. This indicates how natural systems provide design criteria to enhance the efficacy of business operations, governance and regulation.
... There are two inconvenient truths about all Anglo type publicly traded companies: - (1) Directors have no systemic processes for carrying out their most fundamental roles with information independently of management to: (a) direct and monitor management or (b) learn when their trust in management is misplaced, and (2) Directors have absolute power to manage their own conflicts of interest that can corrupt absolutely both themselves and the organisation. Systemic solutions to these problems are described in the public policy booklet on A New Way to Govern: Organisations and society after Enron (Turnbull 2002a) and in a number of related articles (Turnbull 2000; 2002b; 2006). To obtain information independently of management directors need feed-forward and feedback information from separate advisory forums for each stakeholder group of record established by the corporate constitution to be independent of the grace and favour of management (Turnbull 2000Turnbull , 2006). ...
... Systemic solutions to these problems are described in the public policy booklet on A New Way to Govern: Organisations and society after Enron (Turnbull 2002a) and in a number of related articles (Turnbull 2000; 2002b; 2006). To obtain information independently of management directors need feed-forward and feedback information from separate advisory forums for each stakeholder group of record established by the corporate constitution to be independent of the grace and favour of management (Turnbull 2000Turnbull , 2006). Likewise, corporate constitutions need to introduce a more appropriate division of powers between shareholders and directors by establishing what Australian Senator, Andrew Murray (1999) described as a " Corporate Governance Board " (CGB). ...
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... Mondragón firms illustrate how the constitution of constituent controlled organizations can be designed to achieve economy, efficiency and effectiveness as reported by Turnbull (1995b Turnbull ( , 1997a Turnbull ( , 2000a Turnbull ( , 2001 Turnbull ( , 2002b). The result enriches the texture of democracy at the micro level to introduce participative social engagement with essential community services, (refer to rows 9 and 10 ofTable 1). ...
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This paper provides a framework for evaluating the strengths and weaknesses of public assets owned by: (i) The State, (ii) A State owned corporatized body, (iii) Private investors or (iv) By a network of constituents. A basis is presented for analysing these four governance architectures based on their (i) Accountability, (ii) Quality of service, (iii) Operating costs, (iv) Funding (v) Cost of finance, and (vi) Political outcomes. Network governance augments and/or replaces the centralized communication and control of the other three alternatives with distributed: communications, intelligence, decision making, and control to prodigiously reduce information overload and bounded rationality that can facilitate more dynamic, efficient and effective operations. At the same time, network governance can improve the volume and integrity of information and control for detecting and correcting errors to improve economy, efficiency and effectiveness while enhancing self-regulation to minimize the dead weight cost of regulation and compliance. Other attractions of governance by a network of private sector constituents arises from: (i) No increase in government debt; (ii) Replacing Ministerial accountability with accountability by constituents to constituents; (iii) Enriching democracy by direct citizen participation; (iv) Changing the role of government from direct intervention to establishing the rules of the game for self-governance; (v) Increasing economy, efficiency and effectiveness by replacing private sector competition for control through markets and regulation with internal organizational competition for control among constituents with competing interests; (vi) Avoiding autocratic or plutocratic control of public assets by investors that undermines democracy and creates resentment. In these ways, network governance can reduce cynicism of politicians and government that can generate social alienation and disengagement.
... The same arguments hold as a rationale for a voluntary democratization of corporate governance as a means to tackle the shifting allocation of risks and the concomitant legitimacy problems of business. As argued by Turnbull (2000), the concept of a self-enforcing model of corporate law might serve as the basis for the policies of governments and development agencies to promote democratic forms of corporate governance. Building on this idea, in the following we discuss the feasibility and prospect of a legal and soft-legal enforcement of democratic corporate governance. ...
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Initial sociological interest in network forms of organization was motivated in part by a critique of economic views of organization. Sociologists sought to highlight the prevalence and functionality of organizational forms that could not be classified as markets or hierarchies. As a result of this work, we now know that network forms of organization foster learning, represent a mechanism for the attainment of status or legitimacy, provide a variety of economic benefits, facilitate the management of resource dependencies, and provide considerable autonomy for employees. However, as sociologists move away from critiquing what are now somewhat outdated economic views, they need to balance the exclusive focus on prevalence and function-ality with attention to constraint and dysfunctionality. The authors review work that has laid a foundation for this broader focus and suggest analytical concerns that should guide this literature as it moves forward.
Article
In recent years, the term network has come into very widespread use in different fields of social, natural and computer sciences. This paper develops a framework for one kind of those different types of networks: Corporate alliance networks. The network approach implies a focus on the network and the space between organizations rather than on what is taking place within individual organizations. The paper further attempts to consider the characteristics of networks as self-organizing systems. Self-organization may be taken as the opposite of construction or organization from outside. By joining in alliance networks firms are leaving limiting competitive structures characterized by demarcation and hierarchy. Although networks tend to be stable, they are never static. Three promising features of self-organizing networks are proposed: Recursivity, redundancy, and self-consciousness.
Article
The paper shows how current corporations are deficient in their ability to promote economic efficiency, justice, self-governance, social accountability and environmental sustainability. To ameliorate these deficiencies it is proposed that the static, perpetual and monopoly property rights of stockholders be replaced with dynamic, time-limited, co-ownership rights. This would create Ownership Transfer Corporations (OTC's) which could be used to reduce the ability of investors to obtain profits in excess of the incentive required to attract their investment. The excess incentive or ‘surplus profits’ could then be shared with corporate stakeholders by making them co-owners. As the stakeholders would include employees, customers, and suppliers, the general adoption of OTC's would produce a universal income. National income could be re-distributed without work or welfare and taxes. OTC's would extend the self-governing attributes of Mondragon co-operatives and provide a simpler and more effective way than Employee Stock Ownership Plans (ESOP's) for either capitalising socialism and/or democratising the wealth of nations.
Article
This paper analyses the inherent operational defects of centrally controlled hierarchies which are common to both the public and private sectors in Anglo-Saxon corporate architecture and suggests how these defects may be ameliorated. The defects arise from the use of unitary boards which introduce conflicts of interest for directors and reduces both their ability and incentive to improve operational performance. The use of supervisory boards and stakeholder councils to decentralise control, provides a basis for improving the operational performance of directors and their organisation. Also, stakeholder participation provides a way to convert ‘open’ hierarchies into several decentralised ‘closed loop’ information and control systems to improve operating performance. Practical examples are found in Japanese keiretsu firms, the employee/consumer co-operatives found around the town of Mondragón in Spain and in the governance of the Australian Aboriginal and Torres Strait Islander Commission. This paper considers the opportunities for public and private sector organisations using Anglo-Saxon corporate architecture to improve their performance, social accountability and competitiveness by introducing stakeholder governance.
Article
The joint stock, limited liability company has been one of the most pervasive and successful systems ever developed in the civilized world. But now there are signs that the basis of the company needs to be rethought; problems and limitations abound. Far from being an independent paradigm, the corporate concept is shown to be culturally derived. Consideration is given to systems adopted in Japanese and Overseas Chinese business practice, depicting alternatives to classical Western corporate systems.
Article
The management of complexity is proving to be a major issue for organisations, as are problems of reliability and flexibility. It is widely agreed that these problems can be traced to organisational architectures emphasising centralisation and control. A solution to the problem of complexity lies then, not in developing more sophisticated approaches to the 'management of complexity', but in cutting back the complexity at source. A range of alternative architectures has emerged, in both industrial settings and in technological systems, where the emphasis is on building autonomy into nested sequences of operational entities; in these architectures, the achievement of system order arises as an issue of coordination of these semi-autonomous entities rather than centralised control over the atomistic operations themselves. Examples of this solution are given in cellular manufacturing, robotic systems, software engineering (Object-oriented programming') and in communication systems. These solutions are generalised as 'holonic organisational architecture' (after Koestler's 1967 terminological innovation) and their general properties derived. Use is made of a triad of relations which arises naturally from the holonic perspective: there are first order relations pertaining to holons themselves; second order relations pertaining to inter-holonic integration at any particular level; and third order relations linking the total system to its holonic constituents. The dynamic properties of holonic systems are demonstrated, again using the triad of relations, such as in organisational learning and innovation. These insights are applied in some remarks concerning the prescriptive use of the holonic perspective, in the design of holonic systems. Finally the paper looks beyond techno-organisational constructs to find evidence of holonic architectures throughout the natural and biological world, adding further support to the resilience and robustness of this structure. Its significance as a comprehensive alternative to the still dominant hierarchical organisational architecture is thereby underlined.
Article
In this paper we draw on recent progress in the theory of (1) property rights, (2) agency, and (3) finance to develop a theory of ownership structure for the firm.1 In addition to tying together elements of the theory of each of these three areas, our analysis casts new light on and has implications for a variety of issues in the professional and popular literature, such as the definition of the firm, the “separation of ownership and control,” the “social responsibility” of business, the definition of a “corporate objective function,” the determination of an optimal capital structure, the specification of the content of credit agreements, the theory of organizations, and the supply side of the completeness-of-markets problem.
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Article
The article compares the three major institutionalist schools, namely transaction cost economics (TCE), competencies theory (CT) and evolutionary theory (ET) of the firm, on a contemporary issue, that of strategic business alliances. The article finds that, based on different assumptions and perspectives, the three approaches shed light on different elements of strategic alliances. While most of their contributions are complementary, there are some clear oppositions among them. The authors conclude that a composite framework of the competencies and the evolutionary approaches, using some insights of TCE, provide the most comprehensive set of questions and hypothesis.
Article
This paper relates quality and uncertainty. The existence of goods of many grades poses interesting and important problems for the theory of markets. On the one hand, the interaction of quality differences and uncertainty may explain important institutions of the labor market. On the other hand, this paper presents a struggling attempt to give structure to the statement: “Business in under-developed countries is difficult”; in particular, a structure is given for determining the economic costs of dishonesty. Additional applications of the theory include comments on the structure of money markets, on the notion of “insurability,” on the liquidity of durables, and on brand-name goods.
Article
A resource-based approach to strategic management focuses on costly-to-copy attributes of the firm as sources of economic rents and, therefore, as the fundamental drivers of performance and competitive advantage. Interest presently exists in whether explicit acknowledgement of the resource-based view may form the kernel of a unifying paradigm for strategy research. This article addresses the degree to which a resource-based view represents a fundamentally different approach from theories used in industrial organization (10) economics. The central thesis is that, put informal terms, the resource-based approach is reaching for a theory of the firm. To determine its distinctiveness in comparison to IO, therefore, an appropriate comparison is with other theories of the firm developed within that tradition. Section I summarizes and analyzes five theories that have been significant in the historical evolution of IO. These are neoclassical theory's perfect competition model, Bain-type IO, the Schumpeterian and Chicago responses, and transaction cost theory. The first part of Section II analyzes the resource-based approach in terms of similarities to and differencesfrom these IO-related theories. The conclusion is that resource-based theory both incorporates and rejects at least one major element from each of them; thus resource-based theory reflects a strong IO heritage, but at the same time incorporates fundamental differences from any one of these theories. The second part of Section II analyzes resource-based theory as a new theory of the firm.
Article
A number of proposals have been advanced in recent years for the development of “general systems theory” which, abstracting from properties peculiar to physical, biological, or social systems, would be applicable to all of them. We might well feel that, while the goal is laudable, systems of such diverse kinds could hardly be expected to have any nontrivial properties in common. Metaphor and analogy can be helpful, or they can be misleading. All depends on whether the similarities the metaphor captures are significant or superficial.
Article
This book is not a treatise on all cerebral mechanisms but a proposed solution of a specific problem: the origin of the nervous system's unique ability to produce adaptive behaviour. The work has as basis the fact that the nervous system behaves adaptively and the hypothesis that it is essentially mechanistic; it proceeds on the assumption that these two data are not irreconcilable. It attempts to deduce from the observed facts what sort of a mechanism it must be that behaves so differently from any machine made so far. Other proposed solutions have usually left open the question whether some different theory might not fit the facts equally well: I have attempted to deduce what is necessary, what properties the nervous system must have if it is to behave at once mechanistically and adaptively. The concepts of organisation, behaviour, change of behaviour, part, whole, dynamic system, co-ordination, etc.--notoriously elusive but essential--were successfully given rigorous definition and welded into a coherent whole. But the rigour and coherence depended on the mathematical form, which is not read with ease by everybody. As the basic thesis, however, rests on essentially commonsense reasoning, I have been able to divide the account into two parts. The main account (Chapters 1-18) is non-mathematical and is complete in itself. The Appendix (Chapters 19-22) contains the mathematical matter. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
Article
This paper develops a "self-enforcing" approach to drafting corporate law for emerging capitalist economies, based on a case study: a model statute that we helped to develop for the Russian Federation, which formed the basis for the recently adopted Russian law on joint-stock companies. The paper describes the contextual features of emerging economies that make importing statutes from developed countries inappropriate, including the prevalence of controlled companies and the weakness of institutional, market, cultural, and legal constraints. Against this backdrop, we argue that the best legal strategy for protecting outside investors in emerging economies while simultaneously preserving the discretion of companies to invest is a self-enforcing model of corporate law. The self-enforcing model structures decisionmaking processes to allow large outside shareholders to protect themselves from insider opportunism with minimal resort to legal authority, including the courts. Among the examples of self-regulatory statutory provisions are a mandatory cumulative voting rule for the selection of directors, which assures that minority blockholders in controlled companies have board representation, and dual shareholder- and board-level approval procedures for self-interested transactions. The paper also examines how one can induce voluntary compliance and structure remedies in emerging economies, as well as the implications of the self-enforcing model for the ongoing debate over the efficiency of corporate law in developed economies.
Article
The paper develops a theoretical framework for analyzing the exchange structure in the trading of imperfectly imitable and imperfectly mobile firm resources. It first explores the conditions for such resources to be gainfully traded between firms and then investigates the interconnections between barriers to imitation and impediments to trading. A major part of the paper is devoted to developing an integrative and yet parsimonious model for assessing the exchange structure between firms that are involved in the trading of strategic resources in the face of signifcant transaction cost problems. The model is applied in the last part of the paper to the analysis of the choice between acquisitions and collaborative ventures.
Article
This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears these costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem.The directors of such [joint-stock] companies, however, being the managers rather of other people's money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master's honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company.Adam Smith, The Wealth of Nations, 1776, Cannan Edition(Modern Library, New York, 1937) p. 700.
Article
What is the problem we wish to solve when we try to construct a rational economic order? On certain familiar assumptions the answer is simple enough. If we possess all the relevant information, if we can start out from a given system of preferences, and if we command complete knowledge of available means, the problem which remains is purely one of logic. That is, the answer to the question of what is the best use of the available means is implicit in our assumptions. The conditions which the solution of this optimum problem must satisfy have been fully worked out and can be stated best in mathematical form: put at their briefest, they are that the marginal rates of substitution between any two commodities or factors must be the same in all their different uses. This, however, is emphatically not the economic problem which society faces. And the economic calculus which we have developed to solve this logical problem, though an important step toward the solution of the economic problem of society, does not yet provide an answer to it. The reason for this is that the “data” from which the economic calculus starts are never for the whole society “given” to a single mind which could work out the implications, and can never be so given. The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.
Book
Economic theory has suffered in the past from a failure to state clearly its assumptions. Economists in building up a theory have often omitted to examine the foundations on which it was erected. This examination is, however, essential not only to prevent the misunderstanding and needless controversy which arise from a lack of knowledge of the assumptions on which a theory is based, but also because of the extreme importance for economics of good judgment in choosing between rival sets of assumptions. For instance, it is suggested that the use of the word “firm” in economics may be different from the use of the term by the “plain man.” Since there is apparently a trend in economic theory towards starting analysis with the individual firm and not with the industry, it is all the more necessary not only that a clear definition of the word “firm” should be given but that its difference from a firm in the “real world,” if it exists, should be made clear. Mrs. Robinson has said that “the two questions to be asked of a set of assumptions in economics are: Are they tractable? and: Do they correspond with the real world?” Though, as Mrs. Robinson points out, “more often one set will be manageable and the other realistic,” yet there may well be branches of theory where assumptions may be both manageable and realistic.
Conference Paper
THE problems of cryptography and secrecy systems furnish an interesting application of communication theory.1 In this paper a theory of secrecy systems is developed. The approach is on a theoretical level and is intended to complement the treatment found in standard works on cryptography.2 There, a detailed study is made of the many standard types of codes and ciphers, and of the ways of breaking them. We will be more concerned with the general mathematical structure and properties of secrecy systems.
Article
Contenido: El carácter de la investigación operacional; La actividad de la investigación operacional; La conveniencia de la cibernética; Resultados.
Article
It is traditional in the theory of the firm to define the production opportunity set available to the firm in terms of its boundary the maximum attainable set of output quantities for various input quantities, given the state of technology and knowledge. This boundary is the production function of the firm. One of our purposes here is to point out the dependence of such production functions on the structure of property rights and contracting rights within which the firm exists. We redefine the production function in order to recognize the dependence of output on the structure of property and contracting rights. That expanded framework is then used to discuss a concrete set of problems surrounding the role of labor in the firm ranging from the labor-managed firm system (in which tradable capital value residual claims [common stock] are legally prohibited), and the codetermination and industrial democracy movements (in which management participation by labor is required by law), to cooperatives and professional partnerships (i.e., quasi-labor-managed firms which arise out of the voluntary contracting process), and the capitalist corporation.
Article
I. Introduction, 488. — II. The model with automobiles as an example, 489. — III. Examples and applications, 492. — IV. Counteracting institutions, 499. — V. Conclusion, 500.