Firm's Choice of Regulatory Instruments to Reduce Pollution: A Transaction Cost Approach

Share Contract Revisited: A New Transaction Cost Approach

Man and the Economy ◽

10.1515/me-2021-0001 ◽

2021 ◽

Vol 0 (0) ◽

Author(s):

Jian Ding ◽

Yixiao Zhou

Keyword(s):

Hong Kong ◽

Transaction Cost ◽

Empirical Studies ◽

Theoretical Explanation ◽

Empirical Testing ◽

Cost Approach ◽

Satisfactory Answer ◽

The Impact

Abstract The purpose of this paper is to explore how sharecropping contracts are chosen over fixed-rent contracts. There are two concerning issues. First, theoretical explanation has been criticized for not providing a satisfactory answer to the question as to why share contracts are chosen. Second, among the existing empirical studies, there are great controversies about the impact of variance of output. Inspired by the latest insights from (Cheung, S. N. S. 2014. Economic Explanation. Hong Kong: Arcadia Press.), this paper not only provides an explanation for the choice of share contract that is suitable for empirical testing, but also solves the puzzle over variance of output.

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Firms' Choice of Regulatory Instruments to Reduce Pollution: A Transaction Cost Approach

Business and Politics ◽

10.2202/1469-3569.1073 ◽

2004 ◽

Vol 6 (3) ◽

pp. 1-20 ◽

Cited By ~ 26

Author(s):

Magali Delmas ◽

Alfred Marcus

Keyword(s):

Transaction Costs ◽

Transaction Cost ◽

Transaction Cost Economics ◽

Command And Control ◽

Governance Structure ◽

Governance Structures ◽

Negotiated Agreements ◽

Regulatory Instruments ◽

Market Opportunities ◽

And Control

This paper compares the economic efficiency of firm-agency governance structures for pollution reduction using transaction costs economics. Two governance structures are analyzed with the transaction costs approach: command and control regulation (CCR) and negotiated agreements (NAs). We propose that the choice of governance structure depends on the strategies firms pursue given the attributes of their transactions and their market opportunities. The application of transaction cost economics analysis leads to different choices of regulatory instruments. Firms in more mature, stable industries are likely to choose command and control, while firms in new, dynamic sectors are more likely to opt for negotiated agreements. Frequency of transactions is a key factor in firm choice.

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