Economic Foundations of Strategy provides not only the essential basic tenets of strategy, it also shows the inter-relationships of five major theories of the firm: the behavioral theory; transaction costs theory; property rights theory; agency theory; and dynamic resource-based theory. Even though technological, organizational and institutional change advances breathlessly, the theories of the firm provided in this research book are durable principles that have stood, and the author maintains will continue to stand, the test of time. Economic Foundations of Strategy emphasizes the complementarities among these five theories of organization, and the potential for integrating these theories in the evolving science of organization. Applications of these theories to business practice are emphasized throughout the book.
Chapter 3: Property Rights Theory
Property Rights Theory
Coase (1960) initiated a flurry of property rights research that perhaps reached its peak with Alchian and Demsetz (1973). Barzel (1989) and Eggertsson (1990) provide useful discussions of the early property rights research literature. Much of this early property rights literature (with Demsetz , serving as an exemplar of the neoclassical economics tradition) was quite optimistic about the evolution of property rights toward economic efficiency. Three important criteria for efficiency of property rights are (1) universality—all scarce resources are owned by someone; (2) exclusivity—property rights are exclusive rights; and (3) transferability—to ensure that resources can be allocated from low to high yield uses. In Demsetz's (1967) neoclassical economics framework, all three criteria are in place (in the long run).
In some ...