Eco550

Chapter 15: 2,5,6

2. If contract promises were not excused because of acts of war, would the clearing and settlements clients of Bank of New York change their behavior? If so,how?What reliance behavior would be considered efficient? What reliance behavior would be considered excessive?

The frustration of purpose doctrine is an excusal of violation of contract under the Uniform Commercial Code. But if a contract is violated and not excused in financial dealings of the Bank of New York, customers would have to make back-up plans to buy and sell securities and clear their trades through other financial intermediaries. Efficient reliance would constitute customers’ undertaking risk exposures that firms like the Bank of New York might face. Excessive reliance would then be exemplified by unanticipated risk exposures that customers undertook.

5. Would warehouse operators insist on owning their own trucking companies?

Why or why not? What coordination and control problems and contractual hazards would these companies encounter?

Warehouse operators would not insist on owning their own trucking firms. They are not dependent because they are not unique complements. Most warehouses will work with multiple trucking firms. Other standard coordination and control problems would be hold-up at renewal and incentives to elicit unobservable effort.

6. What organizational form would warehouse operators and truck hauling companies adopt?

See Table 15.3 E F FI C I E N T O R G AN I Z ATI O N AL FO RM D E P E N D S O N AS S E TC H ARAC TE R I S TI C S

F UL LY RE D E P L O YAB L E

D URAB LE AS S E TS N O N- RE D E P L O YAB L E

RE L I AN T AS S E TS

Not dependent on unique

complements Spot market recontracting Long-term supply contracts + risk

management

One-way dependent assets Relational contracts (alliances) Vertical integration

Bilateral dependent assets Relational contracts (joint ventures) Fixed profit-sharing contracts

It lists the...