Reputation, Commitment And Organizational Forms

This thesis is a preliminary attempt to study the determinants of socioeconomicinstitutions in general and organizations in particular. It is motivated by the followingobservations and tries to provide a plausible explanation for them. Why rules are morelikely to be manipulated by people in some societies while they are not so in othersocieties? Why explicit and formal rules as "laws in action" play a more importantrole in some societies, while some implicit rules play a relatively more important partin other societies? Why some financial systems are relationship-based while otherfinancial systems are arm-length-based? Why the ownership structure is highlyconcentrated in some economies and a higher proportion of firms are family firms,while in other economies there are relatively more Chandlerian firms? This thesis tries to provide a unified framework to account for the abovevariations and questions. The 6 chapters of the thesis go as follows. Chapter 1 is Introduction. In this chapter, we present the motivation for writingthe thesis, approach and some underlying assumptions adopted in the thesis, somenovel features and the structure of the thesis. Chapter 2 is A Evaluative Survey of the Literature. It critically reviews severalstrands of relevant literature. They are Transaction Cost Economics, Law and Finance,New Theory of Soft Budget Constraint, and Historical and Comparative InstitutionalAnalysis. We review them in turn and compare them with our framework. Chapter 3 is Reputation, Social Trust and Organizational Forms. This chapterstudies the effects of social structure, especially the reputation hierarchical structureon the socioeconomic institutions and organizations in a society. Drawing on areputation cascade model, it draws the following main general conclusions: 1) In asociety with well structured pyramid of reputation and social trust, the socioeconomicinteractions are more likely to go beyond personal level; 2) In such a society, it ismore likely to have "laws in action" that govern the socioeconomic interactions of theeconomic agents;3) In such a society, there is more likely to be well functioningfinancial system. In particular, ceteris paribus, arm-length finance is likely to play arelatively more important role compared with a society without such a socialreputation structure.;4) In such a society, there are more likely to be Chandlerianfirms. 1In particular, it argues 1) in societies with developed intermediaries, ceterisparibus, the social interactions are more likely to develop beyond the personal scopeand the Chandlerian firms are more likely to emerge; 2) A committing governmentcan constitute a reputation resort and heighten the pyramid of social trust so thatChandlerian firms may develop; 3) Ceteris paribus, social and cultural belief andsound rule of law help the development of Chandlerian firms in a society because they"pick the proper equilibrium" in case of multiple equilibria. The chapter also puts some of the theoretic results on empirical tests and givessome policy implications for China. Chapter 4 is Decentralization, Commitment and Organization Forms. Thischapter studies the effects of decentralization on socioeconomic institutions andorganizations in a society. Drawing on new soft budget constraint theory and takingdecentralization as a commitment not to renegotiate, some general results obtain: 1)Ceteris paribus, the ex ante commitments in decentralized economies are more likelyto be binding ex post and there are more likely to be laws in actions that govern thesocioeconomic transactions; 2) Ceteris paribus, the socioeconomic interactions aremore likely to extend beyond the personal level; 3) Ceteris paribus, the commitmentsof government in a decentralized economy are more credible; 4) Ceteris paribus, thefinancial markets are more likely to be better developed in decentralized economieson an arm-length basis; 5)...