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Dean V. Williamson

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Dean V. Williamson

Since at least the early nineteenth century, a great deal of political economy had become occupied with resource allocation.It became occupied with understanding the relative merits of economic systems coordinated by decentralized processes (market-mediated exchange) orby centralized processes invested in a hypothesized administrative state.Debate ultimately inspired advances in theories of system design at the microeconomic level.These advances folded incentive constraints and informational constraints into a formidable theory of the secondbest.The theory, however, yet corresponds to Vernon Smith’s institution-free core of economic theory.The question remained about whether the core encompassed all of the important action or if the analysis of ex post governance in economic relations would require further theoretical developments.Specifically, problems of adapting relationships to contingencies, programmable or unprogrammable, remained outside of the purview of the theory.The addition of incomplete contracting and friction (as in haggling costs) makes adaptation an interesting economic problem.

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Dean V. Williamson

By the time a young Ronald Coase was composing “The nature of the firm” (1937), litigation had already started wending its way through American courts that took up questions that really anticipated Grossman et al. on control rights and Simon and Williamson on adaptation, vertical integration and hierarchy in organizations.With the advent of competition law in 1890, courts had already been set up to take up the question of what constitutes a conspiracy to restrain trade.Courts eventually started to characterize conspiracies by sorting out what they are not: single entities replete with internal processes for exercising and delegating control. However, then came questions about whether governance structures that feature less than completely concentrated control could yet secure the status of single entity.A student of organization may yet discern in the many decades of case law a formative theory of the firm.

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Dean V. Williamson

Looking out on the devastation wrought by the English Civil Wars, political philosophers found themselves contemplating how to harness collective action to obviate problems of collective irrationality.With the advent of competition law more than two centuries later, American courts were situated to take up certain manifestations of collective action: those that obtain from conspiracy to restrain trade.Building on the game theory advances of 1950, economists found ways to characterize the governance of antitrust conspiracies as the mechanisms by which conspirators harness collective action among themselves to obviate, or at least mitigate, their own problems of collective irrationality (profit-diminishing competition).Characterization of the governance of conspiracies can impose structure on the meaning of agreement in the antitrust case law to unreasonably restrain trade.From a governance perspective, the district court’s analysis of agreement in the Apple eBooks price-fixing case,952 F.Supp.2d 638 (S.D.N.Y. 2013), would appear truncated.

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Dean V. Williamson

The research illuminates the role of financial structure (debt or equity financing) and contract renegotiation in enabling efficient adaptation over the course of long-term exchange.I provide evidence from a dataset of electricity marketing contracts about how electricity generators and electricity marketers use four instruments – contract duration, risk-sharing schemes, financial structure, and veto provisions – to channel investment incentives and to address both programmable and unprogrammable demands for contract adjustments.The empirical results demonstrate that veto provisions support long-term contracts by investing the governance of long-term relationships with flexibility in the ancillarity of other instruments that are consistent with efficient adaptation being an important economic problem.

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Dean V. Williamson

How did European merchants finance the commercial revolution? Established narratives highlight roles for reputation effects or the risk-sharing afforded by commenda contracts in enabling merchants to mobilize investment for long-distance trade. In contrast, this study illuminates tradeoffs merchants and their agents encountered in choosing between equity-like schemes (commenda) and debt financing. The study works out of a dataset of 1823 maritime contracts and 291 non-maritime contracts that span 3099 unique contracting dyads (principal–agent pairs). The study demonstrates that it was debt, not commenda, that financed trade on the informational frontiers of the trade economy. It further demonstrates that most trade was conducted through one-shot relationships, not relationships that unfolded over the course of repeated interactions. The results delimit the roles of both formal and relational enforcement mechanisms in enabling long-distance trade in environments that would seem hostile to exchange.

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Dean V. Williamson

For a generation the federal government has maintained programs promoting research joint ventures (RJVs).The ostensible motivation late in the going was to promote knowledge spillovers.The real motivation was to stem the perceived decline of American competitiveness.It is not obvious, however, that federal government initiatives had any effect with respect to either knowledge spillovers or competitiveness.It is not obvious that public initiatives were good at identifying RJVs that would be best situated to generate spillovers.Instead, federal initiatives appear to have channeled resources to ventures that private parties could have been expected to pursue absent subsidies. The conclusion derives from examination of 171 RJV contracts.Research joint ventures involving technologies that were less susceptible to unintended spillover have tended to exploit contractual mechanisms to contain spillovers.Government-subsidized ventures were more likely to exploit those same mechanisms.

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Dean V. Williamson

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Dean V. Williamson

Do institutions matter in economic theory? Or is the economic analysis of institutions a distraction from the most important action? Indeed, does Vernon Smith’s notion of the “institution-free core” of formal economic theory encompass that most important action? To explore this question, this book opens with an informal tour of the economics of system design out of which an economics of adaptation ultimately emerged. The book then offers explorations, via the application of the economics of adaptation in both law and economics relating to how parties manage relationships within the firm, within the context of long-term contracts, and, most vividly, within the context of antitrust conspiracy.
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Dean V. Williamson