process of corporate_governance

May 29th, 2015
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Introduction Governance = authority, control Traditional microeconomical practices do not explain the need for governance, as they focus on commodities. However, a problem arises when talking about many daily transactions When purchasing machinery from another party, the difference between what the two parties generate together and what they can obtain in the marketplace represent a quasi-rent, which needs to be divided. In dividing this surplus, governance plays a role.

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Corporate Governance ( Zingales for Dummies) By Stela BagashevaIntroductionGovernance = authority, control Traditional microeconomical practices do not explain the need for governance, as they focus on commodities. However, a problem arises when talking about many daily transactionsWhen purchasing machinery from another party, the difference between what the two parties generate together and what they can obtain in the marketplace represent a quasi-rent, which needs to be divided. In dividing this surplus, governance plays a role.Governance system: the complex set of constraints that shape the ex-post bargaining over the quasi-rents generated in the course of a relationship. A main role in this system is played by the initial contract. The contract will most likely be incomplete, as it will not specify every possible unforeseen event. This creates a n interesting distinction between decisions made when the two parties entered the relationship and investments were sunk (ex-ante), and when the quasi-rent are divided (ex-post). Thus there is room for bargaining. Outcome of bargaining will be affected by several factors, other than the initial contract:1. Which party has ownership of the machine while it is in the production process?2. The availability of alternatives: How costly is it for the buyer to delay receiving the machine?How costly is it for the manufacturer to delay the receipt of the final paymentHow much more costly is it to have the job finished by

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