3 results
6 - Preventing Economists’ Capture
-
- By Luigi Zingales, American Finance Association
- Edited by Daniel Carpenter, Harvard University, Massachusetts, David A. Moss, Harvard University, Massachusetts
-
- Book:
- Preventing Regulatory Capture
- Published online:
- 05 June 2014
- Print publication:
- 21 October 2013, pp 124-151
-
- Chapter
- Export citation
-
Summary
When economists talk about regulatory capture, we do not imply that regulators are corrupt or lack integrity. In fact, if regulatory capture were due solely to illegal behavior, it would be simpler to fight. Regulatory capture is so pervasive precisely because it is driven by standard economic incentives, which push even the most well-intentioned regulators to cater to the interests of the regulated. These incentives are built into their positions. Regulators depend on the regulated for much of the information they need to do their job properly, and this dependency encourages regulators to cater to the regulated. The regulated are also perhaps the primary audience of the regulators, as taxpayers and citizens more generally have much less incentive to monitor regulation, and generally remain ignorant. Hence the regulators will tend to perform their job with the regulated, rather than the public, in mind, further encouraging the regulators to cater to the interests of the regulated. Finally, career incentives play a big role. The regulators’ human capital is highly industry-specific, and many of the best jobs available to them exist within the industries they regulate. Thus, the desire to preserve future career options makes it difficult for the regulator not to cater to the regulated.
6 - Corporate governance
-
- By Luigi Zingales, University of Chicago
- Edited by Randall S. Kroszner, Louis Putterman, Brown University, Rhode Island
-
- Book:
- The Economic Nature of the Firm
- Published online:
- 05 June 2014
- Print publication:
- 21 September 2009, pp 69-76
-
- Chapter
- Export citation
-
Summary
While some of the questions have been around since Berle and Means (1932), the term ‘corporate governance’ did not exist in the English language until twenty years ago. In the last two decades, however, corporate governance issues have become important not only in the academic literature, but also in public policy debates. During this period, corporate governance has been identified with takeovers, financial restructuring, and institutional investors' activism. But what exactly is corporate governance? Why is there a corporate governance ‘problem’? Why does Adam Smith's invisible hand not automatically provide a solution? What role do takeovers, financial restructuring, and institutional investors play in a corporate governance system?
When do we need a governance system?
The word ‘governance’ is synonymous with the exercise of authority, direction, and control. These words, however, seem strange when used in the context of a free-market economy. Why do we need any form of authority? Isn't the market responsible for allocating all resources efficiently without the intervention of authority? The basic (neoclassical) undergraduate microeconomics courses rarely mention the words ‘authority’ and ‘control’.
In fact, neoclassical microeconomics describes well only one set of transactions, which Williamson (1985) calls ‘standardized’. Consider, for instance, the purchase of a commodity, like wheat. There are many producers of the same quality of wheat and many potential customers. In this context, Adam Smith's invisible hand ensures that the good is provided efficiently without the need of any form of authority.
6 - The Governance of the New Enterprise
-
- By Raghuram G. Rajan, University of Chicago, Luigi Zingales, University of Chicago
- Edited by Xavier Vives
-
- Book:
- Corporate Governance
- Published online:
- 05 June 2012
- Print publication:
- 02 October 2000, pp 201-232
-
- Chapter
- Export citation
-
Summary
The publication of “The Modern Corporation and Private Property” in 1932 by Adolph Berle and Gardiner Means set the terms of the modern debate on corporate governance. Berle and Means focused on the separation of ownership and control in large corporations where multiple layers of salaried managers coordinated production and distribution. What is perhaps less well recognized about their work is that the large public corporation had only recently become the dominant way of organizing production in the United States (see Chandler 1977). The book was therefore prescient in that it recognized this way of organizing the enterprise would be lasting, and hence it was important to study how they would be governed.
At that time, the archetypical public firm was General Motors. The enduring fascination with this firm has been, in part, because of its size and the industry it is in, and, in part, because it was the focus of two of the best known managerial books, Alfred Sloan's My Years with General Motors and Peter Drucker's The Concept of the Corporation.
GM was, and in large part still is, a vertically integrated firm, which owned and controlled a large amount of highly specialized inanimate assets, ranging from plant and machinery to world-famous brand names. In the past, as we will argue, these assets were very hard to replicate and were primarily what made the firm unique. The human capital of employees was, in large part, tied to these assets and immobile.