Economics of International Business

Economics of International Business

A New Research Agenda

Mark Casson

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.

Chapter 4: Bounded Rationality, Meta-rationality and the Theory of International Business

Mark Casson

Subjects: business and management, international business, research methods in business and management, economics and finance, industrial organisation, international business, research methods, research methods in business and management


with Nigel Wadeson 4.1 INTRODUCTION The concept of bounded rationality is often applied to international business behaviour (see for example, Kogut and Zander, 1993). It is a key element in Williamson’s (1975) version of transaction cost theory, and underpins Hedlund’s (1993) arguments in favour of the ‘heterarchy’ – otherwise known as the ‘network firm’. There is, however, no consensus over what exactly ‘bounded rationality’ signifies. The term itself is a curious one. It indicates what it is not – namely full or substantive rationality – but not exactly what it is. There are a number of different views. As a result, a casual reference to bounded rationality is ambiguous, since it is not clear to which particular interpretation of bounded rationality it refers. The object of this chapter is to clarify the concept of bounded rationality by reinterpreting it in terms of information costs. This introduces muchneeded rigour and precision into the analysis of the organization of multinational firms. Many of the effects imputed to bounded rationality can be explained more simply in terms of a rational response to information costs. According to Simon (1947, 1982, 1992), bounded rationality involves the use of satisficing routines. The concept of satisficing indicates, first, that decision-making involves a search for solutions, and, second, that the search is likely to terminate before the ideal solution has been found. The chosen solution is merely satisfactory – it is not necessarily the fully optimal one. The concept of routine indicates that satisficing problem-solvers tend to follow...

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