Advances in the analysis of the relationship between

Advances in the analysis of the relationship between Interfirm Cooperation, Localization and Institutional Patterns by Peter Maskell Professor, MSc, Ph. D, Dr. Merc Director of DRUID Maskell@CBS. dk www. DRUID. dk ESNIE, Institute d'Etudes Scientifiques de Cargèse, Corsica, Wednesday 20 May 2009

The basic mainstream distinction between firm and market ". . . a firm is a production set summarizing the possibilities for transforming one bundle of time-, event- and location-differentiated commodities into another; a market is the coming together of economic agents (firms and consumers) to exchange ownership of such commodity bundles. " (Milgrom and Roberts 1988) 2

Hybrid organizational configurations by time horizon and focus 3

Interfirm cooperation / networks • Vast and badly structured field: • huge number of often unrelated contributions • array of theories and methods • modest degree of deductive theorizing where lower order propositions follow logically from more general propositions Grabher & Powell (eds): "Networks - Critical Studies in Economic Institutions" (Elgar 2004) contains 688 pages with 46 'classic' papers and thousand references 4

Basic assumptions 1. Economic system with intelligent, selfinterested individuals 5

Self-interest 'The beneficence of the play of self-interest only exists because that play is not free, but is confined to certain directions by our great social institutions. . . What individual self-interest dictates as a course of action in any particular case thus depends on the total set or pattern of institutions' (Cannan 1896) 6

Basic assumptions 1. Economic system with intelligent, selfinterested individuals 2. Property right allocation and enforcement 7

Basic assumptions 1. Economic system with intelligent, selfinterested individuals 2. Markets with property right allocation and enforcement 3. Rent-seeking organizations with similar and complementary capabilities. Division of labor 8

Pope Innocent IV, 1243 first used the phrase persona ficta when assigning rights and obligations to a person by fiction and only by fiction, thereby including the idea into Roman law that property rights could be executed, assets assembled, capital accumulated and contracts made by purely legal entities of limited liability and infinitive lifetime. 9

Basic assumptions 4 1. Economic system with intelligent, self-interested individuals 2. Markets with proporty right allocation and enforcement 3. Rent-seeking organizations with similar and complementary capabilities. Division of labor Possibilities of mutually beneficial interaction

In the lone houses and very small villages which are scattered about in so desert a country as the Highlands of Scotland, every farmer must be butcher, baker, and brewer for his own family. [. . . ] (Smith 1776).

Forms of mutually beneficial interaction • • Putting-out systems Subcontracting arrangements Strategic partnerships, Franchising Joint ventures Decentralized profit centers. . . etc. (Williamson 1991, Hennan 1993) 13

Governance Oxley (1997) proposition: higher contractual hazards will lead to more hierarchical forms of governance 14

Costs of cooperation • search and information costs, • bargaining and decision costs, • policing and enforcement costs • incentive alignment costs (Dahlman 1979, Foss 1999) 17

Recent additions. . . • Offshore outsourcing • Crowdsourcing (Lakhani and Jeppesen 2007) 18

Repeated games Exit costs and higher order institutions • Manufacturing • Construction/Creatives 20

Social Network Theories (Reactions to Williamson's model of individual opportunism etc. ) 1. Analyze how positions in networks provide leverage or access, shaping the accumulation of resources and knowledge.

Social Network Theories (Reactions to Williamson's model of individual opportunism etc. ) 1. 2. Analyze how positions in networks provide leverage or access, shaping the accumulation of resources and knowledge. Anticedents of networks traced to broad institutional environment (Sako and Helper 1998). NSI/RSI

Social Network Theories (Reactions to Williamson's model of individual opportunism etc. ) 1. 2. 3. Analyze how positions in networks provide leverage or access, shaping the accumulation of resources and knowledge. Anticedents of networks traced to broad institutional environment (Sako and Helper 1998). NSI/RSI Executive networks to gather information, deter competition and collude in setting prices or policies

Social Network Theories (Reactions to Williamson's model of individual opportunism etc. ) 1. 2. 3. 4. Analyze how positions in networks provide leverage or access, shaping the accumulation of resources and knowledge. Anticedents of networks traced to broad institutional environment (Sako and Helper 1998). NSI/RSI Executive networks to gather information, deter competition and collude in setting prices or policies Prescriptive on how to reduce uncertaincy

SPACE

Localization - Clusters • New institutional economics • New economic geography 26

Geographical proximity effects? “there is no compelling reason to assume that . . local ties are stronger than ties at a distance. ” Relational proximity can exist between actors located in different parts of the world. Modern technological and institutional developments facilitate both the transfer of information and the travelling of people across space. Amin and Cohendet (2004). 29

Clusters: definition and types Real-life existing phenomenon - across time and space Non-random geographical agglomerations of firms with similar or closely complementary capabilities (see Ellison and Glaeser 1994) 30

Cluster publications 1953 -2004 Number of articles, published in scholarly journals within the social sciences with the term 'cluster’ or its synonyms in the title or in the abstract or among the keywords. (Maskell & Kebir 2006) 31

Cluster theory Three fundamental issues 1) Existence: the economic and social benefits that may accrue to firms when clustering or collocating 2) Extension: the diseconomies encountered when clustering exceeds certain geographical and sectoral thresholds. The solitary firm 3) Exhaustion: the possible erosion of economies and onset of diseconomies over the lifecycle of the cluster 32

Recent developments External Linkages - Local interaction as an interpretive framework 36

Recent developments 3 Spilloversus genealogy and evolution 1. Entrepreneurship, first mover advantage, market selection 2. 38

Recent developments 3 Spilloversus genealogy and evolution 1. Entrepreneurship, first mover advantage, market selection 2. Steep learning curve, organizational superiority, institutions and infrastructure 3. 39

Recent developments 3 Spilloversus genealogy and evolution 1. Entrepreneurship, first mover advantage, market selection 2. Steep learning curve, organizational superiority, institutions and infrastructure 3. Attracting talented wannabes and related entrepreneurs 40

Recent developments 3 Spilloversus genealogy and evolution 1. Entrepreneurship, first mover advantage, market selection 2. Steep learning curve, organizational superiority, institutions and infrastructure 3. Attracting talented wannabes and related entrepreneurs 4. Spin-offs from initial incumbents come endowed with inherited and previously tried-out superior routines. 41

Recent developments 3 Spilloversus genealogy and evolution 1. Entrepreneurship, first mover advantage, market selection 2. Steep learning curve, organizational superiority, institutions and infrastructure 3. Attracting talented wannabes and related entrepreneurs 4. Spin-offs from initial incumbents come endowed with inherited and previously tried-out superior routines. 5. Intensified local rivalry among newcomers and spin-offs help create stable clusters with firms that dominate an industry for generations - sometimes globally (Klepper 2002, Dahl et al. 2003, 2005, Thompson and Klepper 2005, Buenstorf and Klepper 2005), 42

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Institutional dynamics Institutions are viewed as a solution to collective action problems, which enable participants to realize gains from coordination or collocation. 44

Implicit assumptions (and usually incorrect) • Functionalistic • Successful • Fair 45

Institutional dynamics How does which elements combine to make distinctive repertoires possible only at particular points in time and space? 47