Hostname: page-component-78c5997874-dh8gc Total loading time: 0 Render date: 2024-11-14T13:20:43.988Z Has data issue: false hasContentIssue false
  • English
  • Français

The Firm as an Inspector: Private Ordering and Political Rules

Published online by Cambridge University Press:  20 January 2017

Adrienne Heritier ,
Anna K. Mueller-Debus  and
Christian R. Thauer
Adrienne Heritier
Affiliation:
European University Institute Florence
Anna K. Mueller-Debus
Affiliation:
European University Institute
Christian R. Thauer
Affiliation:
European University Institute
Get access Rights & Permissions [Opens in a new window]

Abstract

With increasing fragmentation of worldwide production chains and the corresponding contracting relations between companies, the “firm as an inspector” has become a frequent phenomenon. Buyer firms deploy supervising activities over their suppliers' products and production processes in order to ensure their compliance with regulatory standards, thereby taking on tasks commonly performed by public authorities. Why would a firm engage in such activities? In this article we will analyze the conditions under which firms play the role of an inspector vis-à-vis their sub-contractor firms to guarantee compliance with quality and environmental regulations. We develop a theoretical argument based on transaction cost economics and institutionalism to offer hypothetical answers to this question and provide an empirical assessment of our hypotheses.

Keywords

governanceenvironmental & quality standardsindustrySouth Africa
Type
Article
Information
Business and Politics , Volume 11 , Issue 4 , December 2009 , pp. 1 - 32
Copyright
Copyright © V.K. Aggarwal 2009 and published under exclusive license to Cambridge University Press 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Akerlof, George A. 1970. The Market for ‘Lemons’: Quality, Uncertainty and the Market Mechanism. The Quarterly Journal of Economics 62: 488–500.Google Scholar
Arrow, Kenneth J. 1985. The Economics of Agency. In Principals and Agents: The Structure of Business, edited by Pratt, John W., Zeckhauser, Richard J. and Arrow, Kenneth J. Cambridge: Harvard Business School Press.Google Scholar
Ben-Porath, Yoram. 1980. The F-Connection: Families, Friends, and Firms and the Organization of Exchange. Population and Development Review 6: 1–30.Google Scholar
Brousseau, Eric, and Fares, M'hand. 2000. Incomplete Contracts and Governance Structures: Are Incomplete Contract Theory and New Institutional Economics Substitutes or Complements? In Institutions, Contracts and Organizations: Perspectives from New Institutional Economics, edited by Ménard, Claude. Cheltenham: Edward Elgar.Google Scholar
Cao, Xun and Prakash, Aseem. 2008. Signalling Quality: Trade Competition and the Cross-Country Diffusion of ISO 9000 Quality Management Systems.” Paper presented at a Workshop at the European University Institute, February 29 to March 1, 2008, Florence.Google Scholar
Commons, John R. 1934. Institutional Economics. Madison: University of Wisconsin Press.Google Scholar
Dyer, Jeff H. 1996. Does Governance Matter? Keiretsu Alliances and Asset Specificity as Sources of Japanese Competitive Advantage. Organization Science 14: 649–666.Google Scholar
DiMaggio, Paul J. and Powell, Walter W. 1991. Introduction. In The New Institutionalism in Organizational Analysis, edited by Powell, Walter W. and DiMaggio, Paul J. Chicago: University of Chicago Press.Google Scholar
Hall, Peter A. and Soskice, David. eds. 2001. Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. Oxford: Oxford University Press.CrossRefGoogle Scholar
Joskow, Paul L. 1988a. Asset Specificity and the Structure of Vertical Relationships: Empirical Test of Transaction Cost Analysis. Journal of Law, Economics and Organization 4: 121–139.Google Scholar
Joskow, Paul L. 1988b. Price Adjustment in Long-Term Contracts: Further Evidence from the Coal Markets. RAND Journal of Economics 21: 251–274.Google Scholar
Karagiannis, Yannis. 2007. Economic Theories and the Science of Inter-Branch Relations. Florence: European University Institute.Google Scholar
Kirmani, Amna, Sood, Sanjay, and Bridges, Sheri. 1999. The Ownership Effect in Consumer Responses to Brand Line Stretches. Journal of Marketing 63 (1): 88–101.Google Scholar
Klein, Benjamin. 1988. Vertical Integration as Organizational Ownership: The Fisher Body—General Motors Relationship Revisited. The Journal of Law, Economics and Organization 4: 199–213.Google Scholar
Kwon, Hyeong-Ki. 2004. Markets, Institutions, and Politics under Globalization. Industrial Adjustments in the United States and in Germany in the 1990s. Comparative Political Studies: 88–113.Google Scholar
Laffont, Jean-Jacques and Tirole, Jean. 1993. A Theory of Incentives in Procurement and Regulation. Cambridge, Mass: MIT Press.Google Scholar
Malone, Thomas W., Grant, Kenneth R., Turbak, Franklyn A., Brobst, Stephen A., and Cohen, Michael D. 1987. Intelligent Information-Sharing Systems. Communications of the ACM 30: 390–402.Google Scholar
Masten, Scott E. 1984. The Organization of Production: Evidence from the Aerospace Industry. Journal of Law and Economics 27: 403–417.Google Scholar
Masten, Scott E., Meehan, James W., and Snyder, Edward A. 1991. The Costs of Organization. Journal of Law, Economics and Organization 7: 1–25.Google Scholar
McGuinness, Tony. 1994. Markets and Managerial Hierarchies. In Markets, Hierarchies and Networks, edited by Thompson, Graham, Frances, Jennifer, Levacic, Rosalind, and Mitchell, Jeremy C., 66–81. London: Sage.Google Scholar
Miller, Gary J. 2005. The Political Evolution of Principal-Agent Models. Annual Review of Political Science 8: 203–225.Google Scholar
Monteverde, Kirk and Teece, David J. 1982. Supplier Switching Costs and Vertical Integration in the Automobile Industry. Bell Journal of Economics 13: 206–213.Google Scholar
Oxley, Joanne E. 1999. Institutional Environment and the Mechanisms of Governance: The Impact of Intellectual Property Protection on the Structure of Inter-Firm Alliances. Journal of Economic Behavior and Organization 28: 283–309.Google Scholar
Prakash, Aseem and Potoski, Matthew. 2006. Racing to the Bottom?: Globalization, Environmental Governance and ISO 14001. American Journal of Political Science 50 (2): 350–364.Google Scholar
Prakash, Aseem and Potoski, Matthew. 2007. Investing Up: FDI and the Cross Country Diffusion of ISO 14001 Management Systems. International Studies Quarterly 51 (3): 723–44.Google Scholar
Ross, Stephen. 1973. The Economic Theory of Agency: The Principal's Problem. American Economic Review 63: 134–139.Google Scholar
Simmons, Beth A., Dobbin, Frank, and Garrett, Gareth. 2006. Introduction: International Diffusion of Liberalism. International Organization 60: 781–810.Google Scholar
Williamson, Oliver. 1973. Markets and Hierarchies: Some Elementary Considerations. American Economic Review 63: 519–540.Google Scholar
Williamson, Oliver. 1975. Markets and Hierarchies: Analysis and Antitrust Implications. A Study in the Economics of Internal Organization. New York: The Free Press/Macmillan Publishing.Google Scholar
Williamson, Oliver. 1985. The Economic Institutions of Capitalism. Firms, Markets, Relational Contracting. New York: Free Press.Google Scholar
Williamson, Oliver. 2000. Strategy Research: Competence and Governance Perspectives. In Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research, edited by Foss, Nicolai and Mahnke, Volker, 21–54. New York: Oxford University Press.Google Scholar
Williamson, Oliver. 2002a. The Lens of Contract: Private Ordering. American Economic Review 92 (2): 438–443.Google Scholar
Williamson, Oliver. 2002b. The Theory of the Firm as Governance Structure: From Choice to Contract. Journal of Economic Perspectives 16: 171–195.Google Scholar
Zaheer, Akbar, and Venkatraman, N. 1994. Determinants of Electronic Integration in the Insurance Industry: An Empirical Test. Management Science 40: 549–566.Google Scholar