Slide 1 - 4

Japanese Economy &
Business
Toshiya Ozaki
Rikkyo University
16 February 2023
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2
Index
• Part 1 – Orientation
• Goals, Plans, Practical Matters
• Some basic puzzles
• Part 2 – Factory Tour
• Part 3 – Ice-breaking & Discussion
3
Part 1
4
Goals
• Understand Japanese Economy & Business for
future non-Japanese (esp. Vietnamese) business
managers – so that they may successfully work
with/for/againsst Japanese firms
• Develop “comparative management” perspectives

– so that they may critically analyze international
and cross-cultural managerial issues – not just with
businesses of Japan but also any other foreign
nationals
5
Plan: 1. Broad framework
• Feb 16 by Zoom • Feb 23
• Orientation • Analyzing Economies &
• Factory Tour Markets (4) – National
• Discussion culture & characteristics
• Feb 28 by Zoom
• Feb 21 • Analyzing Economies &
• Analyzing Economies & Markets (5) – Business
Markets (1) – Traditional Systems/Institutional
Approaches Approaches (VOC model)
• Analyzing Economies & • Mar 2

Markets (2) – Institutional
Approaches • Mid-term exam
6
Plan: 2. Applied framework
• March 7 by Zoom • March 14
• Global Competitiveness of • Japanese Distribution &
Japanese Industries Supply Chains
• Special Guest Lecture by
Dr. M. Anchordoguy (Univ
of Washington) on Past, • March 16
Current & Future of • Japanese Labor
Japanese business & Relations, Capabiltiy
economy Development &
Governance
• March 9 by Zoom • Wrap-up
• Japanese Production
• Date TBA – Final exam 7
Practical Matters
• Self-study (60 minutes including Quiz)
International Business Center, Michigan State University
(2020), Doing Business in Japan, (Michigan State
University).
https://ibc-static.broad.msu.edu/sites/globaledge/online-course-modules//Doing-Business-in-Japan/presentation_html5.html
8
Practical Matters
• Class Participation (10%)
• Ask questions & Engage in Discussion (i.e., attitudes)
• Based on Assigned Readings
• Mid-term exam on Approaches (35%)
• Mainly multiple-choice questions to evaluate the level of
understanding (i.e., primarily knowledge)
• Final exam on Integration of Approaches & their
applications to Japanese Business (55%)
• Mainly essay questions to evaluate the level of analytical
capability to critically apply approaches to cases to draw
observations (i.e., knowledge & skills)
9
Basic puzzles
10
Purpose of a company
For-profit
Delivering customer value profitably
11
Purpose of a company
non-profit
Delivering customer value at cost
12
Customer Value?
Example:
Toyota’s value proposition
• Transport people &

cargo safe, fast, easily,
smoothly, efficiently,
comfortably, stylishly,
economically
• At a reasonable cost
https://www.reuters.com/business/autos-transportation/toyota-remains-worlds-biggest-car-seller-
widens-lead-vw-2022-01-28/
13
Customer Value
(why do customers buy your products?)
• Price = Cost + Reasonable Profit
• Price = Cost + Profit < Customer Value
14
Demand of Customers
• Less Expensive (with

more Customer Value),
the better…
• More customers willing
to buy
Supply of Companies
• More expensive (with

more profit), the better…
• More companies willing
to supply
Efficient Market
Assumptions
• Many customers
• Many suppliers (companies)
Ｓ • Free to buy & sell
• Complete information
Result
• Companies compete against each
other
• Only those companies capable of
(Cost + Profit) << Customer Value
survive
17
Customer Value
(why do customers buy your products?)
• Price = Cost + Reasonable Profit
• Price = Cost + Profit < Customer Value
18
Company’s Value Creating Activities (VC)
Similar among Rivals!?
Headquarters
（Plans & Control, Personnel, Legal, PR, etc）
After-
Sales &
Sourcing Manufacturing market
Mktg Services
R&D
Product
Planning 19
Example: Auto Industry
https://www.sailanddrive.com/cars/car-brands-competition-in-the-automobile-industry/ 20
https://www.statista.com/statistics/316786/global-market-share-of-the-leading-automakers/
21
Why is Toyota competitive?
22
SWOT Analysis to examine why some
companies are more competitive than others
Approach: Approach:
Leverage Contain
Inside Strength Weakness

(Organization)
STRATEGY
(road map)
Outside
(Market) Opportunities Threats
Goal: Goal:
Maximize Minimize
23
24
Why are
Japanese auto manufacturing companies
(appear to be) competitive?
25
26
Why are
auto manufacturing companies
dominated in 4 countries?
• Do the German, Japanese, Korean and the US

economies help companies in the Auto Industry gain
global competitiveness?
• Are these economies similar to each other? Different

from each other?
• Are these companies similar to each other? Different

from each other?
27
Part 2: Factory Tour
28
https://youtu.be/yuYw0kxkgx4
29
Part 3: Discussion
30
Discussion session
1. SOUTA SASAKI 19bm005a@rikkyo.ac.jp
2. RINA TAKAHASHI 21bm288p@rikkyo.ac.jp
3. MIZUKI KATO 21bn148j@rikkyo.ac.jp
4. TAIGA OKA 21bn123e@rikkyo.ac.jp
5. OGA CHIAKI 21bn097k@rikkyo.ac.jp
6. MIKARU ONUMA 21bn007z@rikkyo.ac.jp
7. SENJU KURU 21bn140a@rikkyo.ac.jp
8. IKKEI TSUGE 21bn147f@rikkyo.ac.jp
9. KOUSHIRO KURIMA 21bn118e@rikkyo.ac.jp
10. GEORGE YANO 19bm112h@rikkyo.ac.jp
11. HINAKO OKAWA 21bn091f@rikkyo.ac.jp
31
Discussion
Q1. Why is Toyota competitive?
Q2. Why are Japanese auto manufacturing companies

competitive?
Q3. Why are auto manufacturing companies concentrated

in 4 countries?
Q4. How do companies maintain competitiveness if they

operate globally?
32
33
Q1. Why is Toyota competitive?
34
Approach: Approach:
Leverage Contain

(Organization)
STRATEGY
(road map)
Outside
Goal: Goal:
Maximize Minimize
35
36
Q2. Why are Japanese auto
manufacturing companies competitive?
• What are relations between countries and

companies?
• How should we analyze the question? Is SWOT

enough? Anything else??
37
38
Q3. Why are auto manufacturing
companies concentrated in 4 countries?

companies?

39
40
Q4. How do companies maintain
competitiveness if they operate globally?

companies?

41
Levels of analysis
• Individual level factors
• Group level factors
• Firm level factors
• Industry level factors
• Country level factors
• Global/Trans-national factors
42
See you next Tuesday the 21st of February at 8 am!
43
Japanese Economy &
Business
Toshiya Ozaki
Rikkyo University
21 February 2023
Discussion group
1. SOUTA SASAKI 19bm005a@rikkyo.ac.jp
2. RINA TAKAHASHI 21bm288p@rikkyo.ac.jp
3. MIZUKI KATO 21bn148j@rikkyo.ac.jp
4. TAIGA OKA 21bn123e@rikkyo.ac.jp
5. OGA CHIAKI 21bn097k@rikkyo.ac.jp
6. MIKARU ONUMA 21bn007z@rikkyo.ac.jp
7. SENJU KURU 21bn140a@rikkyo.ac.jp
8. IKKEI TSUGE 21bn147f@rikkyo.ac.jp
9. KOUSHIRO KURIMA 21bn118e@rikkyo.ac.jp
10. GEORGE YANO 19bm112h@rikkyo.ac.jp
11. HINAKO OKAWA 21bn091f@rikkyo.ac.jp
2
Index
• Part 1 – Introduction and Chapters 1 & 2
• Part 2 – Chapters 3 to 6
3
Part 1
4
Discussion: What is the central
question of the book?
• CQ: Why are some countries richer, other countries

poorer? How do poorer countries become richer?
Why is it important to business?
5
Discussion
• Puzzles (According to Chapters 1 & 2)
• Why do some economies are large, other economies are
small?
• Do national economies always grow?
• What drives the growth? What determines the speed of
the growth?
6
Most important IB question
• Can we successfully do business in a foreign
country?
• Are there Customers in a host country? Do they buy our

products?
• Can we procure Resources (supplies, labor, capital,

technologies, utilities, etc.) in a host country?
• Can we organize Resources to create Values in a host

country as successfully as we do in a home country?
7
Company Value Chain
Headquarters
After-
Sales &
Mktg Services
R&D
Product
Planning 8
3 Focus Areas: (1) Output Market
Headquarters
After-
Sales &
Mktg Services
R&D
Output market
Product (Products & Services)
Planning 9
3 Focus Areas: (2) Input Market
Headquarters
After-
Sales &
Mktg Services
R&D
Input market Product

(Factors) Planning 10
3 Focus Areas: (3) Organization
Headquarters
After-
Sales &
Mktg Services
R&D
Organization
(Mobilizing Factors Product
to create Values) Planning 11
Most important IB question
• Can we do business in a foreign country
successfully?
• Are there Customers?
… Are they rich? Can we sell them freely & easily
• Can we procure Resources (supplies, labor, capital,
technologies, utilities, etc.)?
… Are they reasonable? Can we procure them freely?
• Can we organize Resources to create Values?
… Are markets functioning?
12
What is the central question of
the book?
• Why are some countries richer, other countries

poorer? How do poorer countries become richer?
Differences of countries and their markets

in terms of
(1) the level of development and efficiency
and
(2) their prospects of change
13
Differences of countries & their markets
https://www.statista.com/chart/25771/highest-gdp-per-capita/
14
GDP Per capita
https://www.youtube.com/watch?v=0BnLfe8jVIw
15
GDP = GDP per capita x population
https://www.youtube.com/watch?v=0EWWXQA9D48
16
Chapter 1
• Basics
• What is the central question (CQ) of the book?
• What criteria may be used to measure national growth
and the rise and fall of the standard of living? What are
serious problems with this measure?
• According to the author, is per capita growth good or
bad? Why?
• What are general observations about the cause of the
growth? What do people argue about possible factors to
increase national standard of living over time?
• What is the hypothesis of the book?
17
Chapter 2
Traditional approaches
• Dependency theory
• What does Dependency theory tell us about national economic
development? Strength? Weakness?
• What does this theory suggest about international business?
>> Role of trade <<
• Neo-classical theory
• What does Neo-classical theory tell us about national economic
development? Strength? Weakness?
• What does this theory suggest about international business?
>> Role of Capital (Technology) <<
• True? Sufficient?
18
19
Value Chain of Firm &
National Differences
20
Value Creating Activities (VC) of a Firm
They are similar around the world

• Example:
Toyota (Japanese), VW (Germany), GM (US) for Cars
Panasonic (Japanese), Samsung (Korean), Apple (US) for PCs
Nintendo (Japanese), Sony (Japan), X-box (US) for Game consoles
If so,
• Which “cross-national differences” affect which part of
value creating activities of a firm?
• How do “cross-national differences” affect them?
21
How do cross-national differences matter?
Approach: Approach:
Leverage Contain

(Organization)
STRATEGY
(road map)
Outside
Goal: Goal:
Maximize Minimize
22
PEST Framework to analyze
National Differences
23
Analyzing National Differences: PEST
• PEST
• Political factors
Political
• Economic factors
• Social/cultural factors
• Technology factors People’s
• Define/Shape Pattern of Behavior
• Factor Endowments – access, cost
• People’s Pattern of Behavior –
formal & informal rules, Technology SWOT Economic
enforcement
• Impacting on SWOT thru
• Input market Factor Endowment
• Organization
• Output market
Social
24
Political Political
5-Forces 5-Forces
& VRIO & VRIO
People’s People’s
Pattern of Behavior Pattern of Behavior
Technology SWOT Economic Technology SWOT Economic
Factor Endowment Factor Endowment
Measuring
Differences
Social Distances Social
(LOF) (Distances)
creating
Home Country Host Country
Determining Uncertainty/Risk,
Manageability Limit to Freedom, Cost 25
Company Value Chain
Headquarters
After-
Sales &
Mktg Services
R&D
Product
Planning 26
PEST Focus Input Mkt Organization Output Mkt Issues
Issues Issues
Political Political System; Laws &
Factors Policies; 5-Forces VRIO for 5-Forces
Enforcement; for OT SW fpr OT
Transparency Demand
Labor
Economic Economic System; Fiscal, Relation
Factors Mkt, Industry, Monetary Customer
Supply
Policies; Preference
Cost
Market Efficiency; &
Inter-firm Wage
Transparency Behavior
Behavior
FreedomSales &
Aft-
Social Religion; Language;
Sourcing Manu Competi-
market
Factors Social Structure; Cost Mktg tion
Svcs
Philosophy (Econ & Org
Political); Education Culture
Price
Technology General Infrastructure R&D
(IT, telecom, electricity,
Prod
transportation, etc.);
Planning
Industry Specific
Is this course about PEST analysis of Japan?
Issues Issues
Political Democratic Political
Factors System; Adequate 5-Forces VRIO for 5-Forces
Enforcement; High for OT SW fpr OT
Transparency Demand
Labor
Economic Market Economy with Relation
Factors Open Trade/FDI; Easy Customer
Supply
Monetary Policies; Preference
Cost
Fair Competition; &
Inter-firm Wage
Behavior
FreedomSales &
Aft-
Social Shinto; High-context;
market
Factors Mid Power Distance; Cost Mktg tion
Svcs
Masculine; Group- Org
oriented; Risk aversive Culture
Price
Technology Advanced Infrastructure R&D
Prod
transportation, etc.),
Planning
High-tech
• PEST – Good start, but not enough

• What do “Democratic Political System,” “Market
Economy” and “High-context” affect Value Creating
Activities of a Firm?
• Are there any general patterns between PEST factors and

Value Creating Activities of a Firm?
29
• PEST – Good start, but not enough

• PESTs vary across countries
Do we need to memorize all 180+ PESTs for countries around the
world if we want to do business in 180+ countries?
• Linkages between PEST factors and business
Just distances (LOF), costs, risks and constraints? Or more?
• Constant
Does a nation’s PEST remain the same forever? Change over time?
30
• Institutional approach – More advanced framework

• Parsimonious frameworks to account for underlying
factors of PEST – integrating PEST factors & making sense
of them
• Clear understanding of the linkage between PEST and “national
level” patterns of market behaviors & organizational dynamics
31
Understand Japanese Business in a
systematic way
• Preparing ourselves for systematic perspectives
• Highlighting key characteristics of Japanese Economy,

Business and Managerial Practices
• Applying the systematic perspectives to Japan to

uncover “causal patterns” that develop key
characteristics of Japanese Economy, Business and
Managerial Practices
32
Japanese Economy &
Business
Toshiya Ozaki
Rikkyo University
21 February 2023
Part 2
2
Index of Part 2:
• Chapter 3: Coase Theorem
• Chapter 4: Static Growth
(break)
• Chapter 5: Dynamic Growth
• Chapter 6: Creating Institutions
3
Chapter 3: Coase
Theorem
4
question?
Why does an organization (company, etc) exist?
5
Discussion:
What are transaction costs?
Why important for understanding
Japanese Economy & Business?
• Measuring Costs / Search Costs
• Examples?
• Negotiation Costs
• Examples?
• Enforcement Costs / Monitoring Costs

• Examples?
• Importance?
6
Market for Lemon (G. Akerlof, 1970)
https://www.pinterest.com/pin/38491771795599693/
7
What is Coase Theorem?
• When transaction costs do not exist in the market, the

efficient outcome always prevail in the marketplace.
• When transaction costs do exist in the market, the

efficient outcome does not prevail in the marketplace,
hence…
• If firms can organize themselves to lower transaction costs,
they can prosper.
• A national economy with higher transaction costs may not
prosper.
Coase Theorem as a foundation of

the “Theory of the Firm”
8
What makes market transaction
costs low?
• High quality institutions
• Measuring/Search costs … formal and informal rules that
allow and encourage transparent information on sellers and
buyers, products/services, prices, terms and conditions,
means of exchange (currency, etc.), etc
• Negotiation costs … (1) same as above ⇒ no need to spend

much efforts for negotiation; (2) formal and informal (mutual
trust) rules that support “Pareto optimal” exchange
• Enforcement/Monitoring costs … (1) clear & thorough terms

and conditions (either formal/explicit or informal/implicit ..
“letters & spirits”); (2) strong formal and informal (mutual
trust) rules that enforce terms and conditions
9
Pareto Optimal Exchange?
c.f. Five Forces of Market (M.Porter, 1980)
4.New
Entrant
2.Sup- 3.Cus-
plier
1.Rival tomer
5.Sub-
stitute
10
What makes market transaction
costs high?
Low quality institutions
• Measuring/Search costs … formal and informal rules that do
not allow transparent information on sellers and buyers,
products/services, prices, terms and conditions, means of
exchange (currency, etc.), etc
• Negotiation costs … (1) same as above ⇒ need for

negotiation; (2) formal and informal rules that enforce “zero-
sum” exchange (lack of mutual trust; opportunistic culture)
• Enforcement/Monitoring costs … (1) vague/confusing terms

and conditions (either formal/explicit or informal/implicit);
(2) weak formal and informal (including mutual distrust and
opportunism) rules that undermine terms and conditions
11
Discussion: What are institutions?
• Consisting of:
• Participants/Members
• Formal Rules
• Informal Rules
• Mechanism to Enforce Rules
• Setting “patterns of behavior,” also known as “strategic

behaviors,” of Participants
• To serve “purposes” that usually are defined as:

• Maximizing Points, Profits, Safety, Happiness, Welfare level,
Utilities…
12
Example: Soccer
• Institution, you and your

behavior
• Participants
• Formal rules
• Informal rules
• Enforcement
13
Example: Rugby

behavior
• Participants
• Formal rules
• Informal rules
• Enforcement
14
Example: American Football

behavior
• Participants
• Formal rules
• Informal rules
• Enforcement
15
• Formal rules • Informal rules
• Spelled out as laws & • Unwritten customs and
regulations practices
• Shaped by Political, • Shaped by Cultural,
Economic and Legal Historical, Linguistic,
systems Religious and Social
• Accompanied by beliefs and norms
enforcement mechanisms • Accompanied by
with formal punishments enforcement mechanisms
with informal
punishments
16
Issues Issues
Political Political System; Laws &
Factors Policies; 5-Forces VRIO for 5-Forces
Enforcement; for OT SW fpr OT
Transparency Demand
Labor
Economic Economic System; Fiscal, Relation
Factors Mkt, Industry, Monetary Customer
Supply
Policies; Preference
Cost
Market Efficiency; &
Inter-firm Wage
Behavior
FreedomSales &
Aft-
Social Religion; Language;
market
Factors Social Structure; Cost Mktg tion
Svcs
Philosophy (Econ & Org
Political); Education Culture
Price
Technology General Infrastructure R&D
Prod
transportation, etc.);
Planning
Industry Specific
Informal Institutions (informal rules) shaping Behavior
18
Market Institutions (chapters 3, 4, 5)
• Laws, regulations, • Culture & Social Norm on
enforcement mechanisms • Honesty (Radius of Trust)
for • Ethical Integrity (Rigor of
• Transparent information on Ethical System)
sellers (& suppliers) and • Power (the way in which
buyers, products/services, Authority is exercised)
prices, terms and conditions • Attitudes regarding Work,
• Competition/Fair Trade Innovation, Saving & Profit,
• Consumer Protection and Exchange
• Currency/Finance • Time
• Safety/Quality/Standards • Opportunism
• Property Rights, etc • Level of Risk Aversiveness
19
Market, Organization and Institution
Source of Transaction Cost (Williamson, 1996)
Market
Transaction
Cost
Organization
Asset Specificity
Buy from Make inside Firm Frequency
Market (vertically integrated) Information Failure
20
Vertical Integration
21
Market
Transaction
Cost
Organization
Asset Specificity
22

Market of countrty B
Transaction Market of countrty A

Cost
Organization
Asset Specificity
23
Chapter 4: Static Growth
24
question?
25
What does “static” mean? What is
the opposite of being “static”?
26
Production Possibility Frontier (PPF) Curve
Coffee
・C
Car 27
According to the Static Growth Model,
what contributes to economic growth?
A: efficient market under which ① specialization and

② division of labor allows optimal resource allocation
for efficient production & exchange
28
Why does productivity increase by
specialization and division of labor?
• Increasing return from learning
• Economy of scale
29
Why do markets of some countries function more
efficiently than those in other countries?
• Different levels of the quality of market institutions
Specialization
Transaction Economic
Institutions Market & Division of Productivity
Cost Performance
Labor
30
Coffee
・C
Car 31
What are the six criteria that the author
argues as critical for markets to function well?
• Demand
• Supplies
• Information about prices, attributes of the product
• Stable monetary system
• Property rights owned by sellers
• Legal system to enforce an exchange
32
What market institutions are necessary?
33

Market of
developing countrty
Economic
Transaction Market of Development
Cost developed country by
Institutional
Improvement
Organization
Asset Specificity
34
Chapter 5: Dynamic Growth
35
question?
36
What is Dynamic Growth?
37
Coffee
・C
Car 38
What are two types of Dynamic Growth?
• Extensive Growth – changes (increase) in

endowments (production factors such as labor,
capital, natural resources, land, etc.)
• Intensive Growth – changes in technologies (i.e.,

innovation)
39
What induces development of new
technologies?
Creativity
Innovation
Competition Risk Money
40
What induces development of new
technologies?
• Formal & Informal Institutions to encourage human
creativity
• Allowing Individuals & Firms to have freedom and incentives to
think about and experiment with new ideas
• Society being open to change
• Financial rewards & incentives (e.g. Patents) and social tolerance
for creativity & rewards
• Formal & Informal Institutions for well functioning capital
market
• Reducing transaction costs to help risk takers invest in innovative
entrepreneurs
• Formal & Informal Institutions for Competitive Environment
• Market institutions forcing firms to continually improve products –
creative destruction
41
Why do markets of some countries induce more
innovation than those in other countries?
• Different institutions regarding human creativity,
capital market and competition
Process of
Behavior of Technological Economic
Institutions Creative
Organizations Progress Wealth
Destruction
42
Why do so many nations remain
persistently poor?
• Path dependent
• Complex interactions between institutions and

economic performances
• Slow evolution of informal institutions over time
43
Chapter 6: Creating Institutions
44
question?
45
Who creates Formal Rules?
• Government (Polity)
• Countries have different types of government

(polity) – the sovereign ruler, the congress, market-
preserving federalism
46
Who creates Informal Rules?
• History/Path Dependent Developments

• Religious institutions, media, community, firms and
other organizations
• Indirect Impact of Formal Institutions, such as
education system, religious/social/cultural policies,
effectiveness of formal enforcement, etc.
47
What is the linkage between government,
corruption, transaction costs & economic
performance?
• When market institutions involve: (1) Poorly designed
(confusing, conflicting, arbitrary) formal rules and/or
(2) Weak enforcement of rules,
• Markets may have high transaction costs … resulting in the
national level economic inefficiency
• Some firms/individuals may be willing to pay to reduce
“perceived” transaction costs to benefit
• Some bureaucrats may be willing to receive bribe to help
them lower their transaction costs
• “Perceived” costs and benefits becomes a part of
informal institutions of corruption (bad culture)
• Changes in “Perceived” costs and benefits may
reduce corruption 48
National Economic Growth
• Poor economy
• Weak institution
• Institutional Changes
• Better Formal and Informal rules
• Stronger enforcement
• When you have weak formal rules/enforcement

• Creative informal rules may fill the void
49
Schedule for First Half
☑ • 2/16 • 2/23
• Orientation • Analyzing Economies &
• Factory Tour Markets (4) – National
• Discussion culture & characteristics
☑ • 2/21 • 2/28 by Zoom

• Analyzing Economies & • Analyzing Economies &
Markets (1) – Traditional Markets (5) – Business
Approaches Systems/Institutional
Approaches (VOC model)
• Analyzing Economies &
Markets (2) – Institutional • 3/2
Approaches • Mid-term exam
50
Japanese Economy &
Business
Toshiya Ozaki
Rikkyo University
23 February 2023
Index
• Part 1:
Quick recap of Yeager (1999), Institutions, Transition
Economies, and Economic Development, Westview.
• Part 2:
Tezuka, Hiroyuki (1997), “Success as the Source of Failure?
Competition and Cooperation in the Japanese Economy,”
Sloan Management Review, 1997 Winter.
• Part 3:
Group project
2
Part 1:
Yeager (1999), Institutions, Transition Economies, and Economic
Development, Westview.
3
Successful Economic
Development
Formal
Rules
Institutions
Enforcement
Informal
Rules
4
According to Yeager… Market Institutions
“Doing things right” for market to function
• Enforcement mechanisms 5
Static growth
Specialization
Cost Performance
Labor
6
Coffee
・C
Car 7
Dynamic growth
Process of
Destruction
8
Coffee
・C
Car 9
Discussion:
What is Đổi Mới?
How do you interpret Đổi Mới by

using Yeager’s institutional
understanding of national economic
development?
10
Static growth
Specialization
Cost Performance
Labor
11
Coffee
・C
Car 12
Dynamic growth
Process of
Destruction
13
Coffee
・C
Car 14
Part 2:
Tezuka, Hiroyuki (1997). “Success as the Source of Failure?
Competition and Cooperation in the Japanese Economy,” Sloan
Management Review, 1997 Winter.
15
Discussion: What is Today’s CQ
(Tezuka, 1997)?
Will the Japanese business system, based on

favorable industrial policies, the keiretsu, and
lifetime employment, survive the current recession?
Note: Tezuka’s paper was published in 1997!
16
What is “Business System”?
Japanese Business System same as “Japanese
Style Management”?
Business System same as “Management

Style”?
• Market institutions interlocking each others (i.e., rules of
the game)
• “Style” sustainable & relevant only If contributing to
Company Competitiveness
• Defining nationally distinct patterns of behavior of firms,
organizations and people that contribute to company
competitiveness
17
Success as the Source of Failure?
What does Tezuka mean by the title?
2 Phases of Japan
• Phase 1 – Until mid 1990’s: Becoming a Successful
Economy driven by Successful Businesses
• Phase 2 – From mid 1990’s: Business and Economy
Struggling
18
Hypothesis (Tezuka’s argument)
Japan’s past success is associated with distinctly
unique Japanese Business Systems (Institutions)
Japanese companies are now (i.e., during the 1990’s)
losing global competitiveness – These Japanese
Business Systems (i.e., Institutions consisting of
formal & informal rules) are constraining Japan’s
continued success, hence they may need to be
modified….
19
Remember Institutions?
• Consisting of:
• Formal Rules
• Informal Rules


Utilities…
20
Example: Soccer

behavior
• Participants
• Formal rules
• Informal rules
• Enforcement
21
Example: American Football

behavior
• Participants
• Formal rules
• Informal rules
• Enforcement
22
Example: Rugby

behavior
• Participants
• Formal rules
• Informal rules
• Enforcement
23
with informal recognition/
punishments
• Enforcement
• Formal – Judiciary (court) &
Administrative (police, etc)
• Informal – Social pressure,
Guilty feeling, etc. 24
Implicit Understanding from Yeager (1999):
Once high quality institutions for markets are in place…
Government should stay away from markets
• No government intervention for efficient market – let market

participants (i.e., buyers and sellers) freely exchange values
• Capital accumulation as a way for growth through

investment in technologies (directly/indirectly)
• Free Trade based on comparative advantage (i.e., poor

economies with labor-intensive products)
• Static growth by Division of Labor, Specialization
• Dynamic growth by Innovation

25
Does Tezuka (1997) agree?
2 Phases of Japan
• Phase 1 – Until mid 1990’s: Becoming a Successful Economy
driven by Successful Businesses
• Phase 2 – From mid 1990’s: Business and Economy Struggling
If the Japanese Government developed high quality

institutions for markets at Phase 1, why does it fail to
renew them at Phase 2?
• Developing a new institution
• Changing institutions (replacing old institutions by new ones)
• Ability and Limit of Government
26
When was “the current
recession”?

lifetime employment, survive the current (=1990’s)
recession?
27
Hypothesis
Japan developed Institutions for the simultaneous
competition and cooperation among companies that
have fostered growth and a system without “losers”
Those same Institutions start constraining Japan to

continue growing as World is changing
Fundamental changes may require an upsurge in risk-

taking Japanese entrepreneurs.
28
Competition & Industry Structure
• In Japan, no firms are dominant

• Many firms in an industry (opposite of the US)
• Competing AND Cooperating each others
• Lower level of profitability
• No losers (i.e., firms going bankrupt or exiting from
industries)
• Role of Japanese industrial policies in:
1. Ensuring competition
2. Assisting structural adjustments (i.e., disruption such as
bankruptcy, unemployment and social turmoil forced by
markets may be avoided)
29
Keiretsu
• Two types of Keiretsu
• Horizontal
• Vertical
• Horizontal Keiretsu
• Examples: Mitsui group, Mitsubishi group, Sumitomo
group, Fuyo group
• Mutual Insurance Systems
• Cross-share holdings
30
Horizontal Keiretsu as Mutual Insurance System:
• Bank-centered Conglomerates
• Cross-shareholding
• Independently managed (less than
10% of business are with other
Keiretsu firms)
Materials
• Sharing the brand value
Services Components • Helping each other especially when
difficult times arise
Construction
Bank Manufacturing
• Ensuring healthy market competition
among Keiretsu groups
Logistics Trading
31
Horizontal
Keiretsu
at
Mitsubishi
32
https://www.lesechos.fr/18/12/1998/LesEchos/17798-168-ECH_la-galaxie-mitsubishi-peine-a-changer-de-siecle.htm
33
34
Mitsui-
Mitsui Group Sumitomo Group
Sumitomo Bank
Mitsu-
Sumitomo
Insurance
35
Vertical Keiretsu
• Vertical keiretsu
• OEM-led Supply Chain
• Eg: Toyota – 60%, Canon – 90% of parts from
Keiretsu suppliers
• Just-in-time production & Lean manufacturing
• Small equity participation or cross-shareholding
• Long-term Locked-in Relationship
• Closely coordinated
OEM • Competition (single source: 12%)
T1 T1 T1
Suppliers Suppliers Suppliers
T2 T2 T2 T2 T2 T2
T3 T3 T3 T3 T3 T3
T3 T3 T3 T3 T3 T3
T3 T3 T3 T3 T3 T3 36
Auto industry – parts & components
37
US Auto Industry:
Market Close to 70% of Parts &
Transaction Components
Cost manufactured in-house
Organization
Asset Specificity
38
Japanese Auto Industry:

Market Only 30% of Parts &
Transaction Components
Cost manufactured in-house
Organization
Asset Specificity
39
Vertical Keiretsu in Auto Industry
Y. Todo, Supply Chains in Japan, 2016

https://www.slideshare.net/yastodo/supply-chains-in-japan
40
Success Factors of Japanese Economic
Development
• High saving rates
• Japanese style management
• Lifetime employment
• Seniority-based wage and promotion
• Enterprise unions
• Competition & Cooperation
• No dominant firms (no consolidation)
• Horizontal Keiretsu (Enterprise Groups)
• Vertical Keiretsu (Integrated Supply Chain with Small and
medium-size firms)
• Government Support for Industry Order & Industrial
Policy
41
Lifetime Employment
• Characteristics of Japanese HR practices
• Lifetime (permanent) employment – Job-hopping is rare
– labor is less liquid and job market is small
• Seniority-based promotion and salaries – slow and
gradual promotion, no fast track, “managed” competition
• Group-based organization (responsibilities) –
performance not only individually but based on group
• Vaguely defined job descriptions – room for collaboration
and flexibility
• Getting full commitment from employees with

competition and cooperation
42
CQ of Tezuka’s paper, “Success as the source of
Failure? Competition and Cooperation in the
Japanese Economy” (1997)?

lifetime employment, survive the current (1990’s)
recession?
Should Japanese Business System (i.e., Japanese

Style Management) be modified/updated/replaced
to keep up with competition??
43
Tezuka’s observation about the sustainability of
the Japanese Business System
• Trade-offs
• Over-investment in production capacity and excessive
competition
• Lowering operating profit
• Accelerated the speed of product development and
shortened the product cycle, making themselves forever
exposed to competitive pressures
• Stressful for workers
• International spillover effects
• Challenges
• Profitability
• Erosion of lifetime employment
• Generational conflict (younger employees unhappy with
fewer promotion opportunities under slow growth)
44
Tezuka’s Argument
While the simultaneous competition and

cooperation among companies have fostered growth
and a system without “losers,” fundamental changes
may require an upsurge in risk-taking Japanese
entrepreneurs
45
Sustainability of the Japanese
Business System
• Trade-offs
• Over-investment in production capacity and excessive
competition
• Lowering operating profit
• Accelerated the speed of product development and
shortened the product cycle, making themselves forever
exposed to competitive pressures
• Stressful for workers
• International spillover effects
• Challenges
• Profitability
• Erosion of lifetime employment
• Generational conflict
46
What should Japan do in the 21st century?
47
Part 3: Group project
48
Do you remember the question –
Why is Toyota competitive?
49
Approach: Approach:
Leverage Contain

(Organization)
STRATEGY
(road map)
Outside
Goal: Goal:
Maximize Minimize
50
51
Why are Japanese auto manufacturing
companies competitive?

companies?

52
53
Why are auto manufacturing companies
concentrated in 4 countries?

companies?

54
55
Group Project
Is Tezuka’s observation (Success as the Source of
Failure) relevant to all industries? Or does it apply
only to some specific industries, while other
industries may be less “failed”?
Which Japanese industries may be more “failed”?

Which of them may be less “failed”?
What may be possible reasons for different levels of

failures across industries?
56
Japanese Economy &
Business
Toshiya Ozaki
Rikkyo University
28 February 2023
Index
• Part 1:
Hall, Peter & David Soskice (2001), Varieties
of Capitalism: Institutional Foundations of
Comparative Advantage, Oxford University
Press, Chapter 1.
• Part 2:
Application of the Varieties of Capitalism
model to Japan
2
Varieties of Capitalism
3
CQ?
• What new framework may help us understand the
institutional similarities and differences among the
developed economies (e.g., US, UK, Germany,
Japan, etc.)? … theory proposition
• What similarities and differences do we observe

among these economies? (p.1) … empirical
observations articulating national business systems
(e.g., characteristics of American, German,
Japanese business systems, etc.)
4
Hypothesis
(Authors' temporary answers to CQ)
• Behaviors of companies (strategies) are systematically

affected (patterned but NOT determined) by the
institutions of the political economy (i.e., market
institutions). p.4
• Competitive (successful) firms behave strategically to

take advantage of the market institutions, hence firms
exploiting comparative institutional advantages.p.5
(note the subtitle: “Institutional Foundation of
Comparative Advantage”)
5
Comparative Institutional Advantage?
Different from “Comparative Advantage”?
Comparative advantage of a nation…..
• Two types of national endowments (production factors)

• A country with abundant labor but scarce capital (technology) … “labor
intensive (L-intensive) country”
• A country with scarce labor but abundant capital (technology) … “capital
intensive (K-intensive) country”
• Advantages in two types of products

• Firms in Labor-intensive country have advantages in “labor-intensive (L-
intensive) products”
• Firms in Capital-intensive country have advantages in “capital-intensive (K-
intensive) products”
6
Patterns of Trade
• Firms should
• Specialize in the product in which their country offers firms an
advantage (... strategy)
• Reduce producing the product in which their country offers firms a
disadvantage (... strategy)
• Export products of advantage and import products of disadvantage
(... strategy)
• Free Trade leads to
• “gains from trade” for both your country and your trading partner
(not Zero-sum) IF they specialize in the production of products of
their respective advantages
• Advantage / Disadvantage
• NOT only at a firm level (Toyota vs Honda)
• BUT also at a national level (Japanese firms vs Thai firms)
7
• Production Factors (Endowments) and Market
Institutions together create advantage
• Labor-intensive x Institutions = Comparative Institutional

• Capital-intensive Advantages
8
Recap: What are institutions?
• Consisting of:
• Formal Rules
• Informal Rules


Utilities…
9
Example: Soccer

behavior
• Participants
• Formal rules
• Informal rules
• Enforcement
10
with informal
punishments
11
• People’s behavior is very much defined/shaped/
influenced by institutions
• Poor quality institutions (formal / informal rules

and enforcement mechanisms) lead to
• High transaction cost -> difficult to specialize
• Less innovation -> difficult to use advanced technologies
• Comparative advantage based on production

factors & institutions???
12
Varieties of Capitalism
• If Yeager’s argument (quality of institutions determines
economic development level) is true…
• Are all developed economies (with high quality institutions),

such as Japan, Germany, Australia and the US, similar to each
other?
• Are all developing economies (with low quality institutions),

such as China, India, Pakistan and Vietnam similar to each
other?
13
VoC: Two distinct types of high-quality
market institutions
• Liberal Market Economies • Coordinated Market
(LMEs) Economies (CMEs)
• Market relations to • Non-market relations to
• maximize profits through achieve various goals
Hierarchical • some goals may be profits and
(monopoly/oligopoly) efficiencies
market relations but also
• optimize efficiency • other goals related to
through Competitive “competence” of a broader
market relations group (eg. help rivals and
suppliers grow so that all of us
grow – i.e., simultaneous
competition & cooperation)
• Arms-length exchange
based on public
information and formal • Coordinated exchange based
contracts on private (closed/insider)
information, collaboration
and incomplete contracts
14
efficiently than those in other countries (by Yeager)?
15
efficiently than those in other countries (by Yeager)?
• Different levels of the quality of market institutions
Specialization
Cost Performance
Labor
16
Coffee
・C
Car 17
Why do markets of some countries induce more
innovation than those in other countries (by Yeager)?
• Different institutions regarding human creativity,

capital market and competition
Process of
Destruction
18
Coffee
・C
Car 19
Yeager: Quality of Market Institutions
affect level of economic development
Better institutions ⇒
Faster Static &
Dymanic Growth
Poorer institutions
⇒ Slower Static &
Dymanic Growth
20
VoC
• There may not be a single type of institutions that
leads to the optimal level of efficiency
• There may not be a single type of institutions that

induces innovation
• Varieties of market institutions (and firm behaviors/

strategies) among similar levels of economies
21
VOC: 2 types of better quality institutions may
affect companies to develop different strategies
Yeager:
Institutional Impact
on Economic Development
LME CME
VoC: VoC:
Arms length Non-market
Transaction Coordination
Developing
economies
22
VoC: What relations may exist between employment
protection & stock market capitalization?
• What is employment protection (i.e., industrial

relations)?
• Formal rules, Informal rules
• What is stock market capitalization?

• Formal rules, Informal rules
23
24
• Correlation (NOT causal relation)

• Institutions for labor market/industrial relations (as
observed by employment protection) and
• Institutions for corporate financing (as observed by stock
market capitalization)
• Correlated ～ Institutional Complementarities
25
VoC: What relations may exist between F/T work
hours & wealth distribution?
26
VoC: What relations may exist between F/T work
hours & wealth distribution?
• Correlation (NOT causal relation)

• Institutions for labor market/industrial relations (as
observed by employment protection) and
• Institutions for wealth distribution (social equity)
• Correlated ～ Institutional Complementarities
27
What are 4 key institutions that may
define firm behaviors under LMEs/CMSs?
• Institutions for Governance/Financing

(Stockholder/Stakeholder Relations)
• Institutions for Organizational Technologies/

Capabilities
• Institutions for Labor/Industrial Relations
• Institutions for Inter-firm Relations
28
CME LME
29
Which countries are LMEs? CMEs?
• LMEs • CMEs
• US • Austria
• UK • Germany
• Australia • Japan
• Canada
(Anglo-Saxons) • France
• Finland
• Italy
• Netherland
30
Governance & Financing
Headquarters
After-
Mkt/Sales
Distribution Services
R&D
Product
Planning 31
Institutions for Governance/Financing
• LMEs • CMEs
• What is a main source • What is a main source
of corporate financing? of corporate financing?
• How does it affect • How does it affect

corporate governance? corporate governance?
CEO evaluation? CEO evaluation?
• Purposes? • Purposes?
• Time horizon? • Time horizon?
• Uncertainty? Risk? • Uncertainty? Risk?
• Compensation? • Compensation?
32
Organizational (i.e., Firm Acquiring/Investing/Developing)
Technologies/Capabilities
Headquarters
After-
Mkt/Sales
R&D
Product
Planning 33
Institutions for Organizational(i.e., firms
acquiring) Technologies and Capabilities
• LMEs • CMEs
• What kinds of technologies • What kinds of technologies
and capabilities do firms and capabilities do firms
rely on? rely on?
• How does a firm acquire • How does a firm acquire
them? them?
• Investment in “Sunk cost” • Investment in “Sunk cost”
training? training?
• Relations with Labor • Relations with Labor
Mobility? Mobility?
34
e.g. Accounting skills, e.g. Toyota-specific
Standard
Language skills Specific Kaizen skills
Market
Transaction
Cost
Organization
Asset Specificity
35
Labor/Industrial Relations
Headquarters
After-
Mkt/Sales
R&D
Product
Planning 36
Institutions for Labor/Industrial
Relations
• LMEs • CMEs
• What defines industrial • What defines industrial
relations? Hostile/Arms relations? Hostile/Arms
Length? Cooperating? Length? Cooperating?
• What is the level of labor • What is the level of labor
protection and mobility? protection and mobility?
• How do industrial • How do industrial
relations impact relations impact
strategies to develop strategies to develop
organizational organizational
capabilities? capabilities?
• How about diffusion of • How about diffusion of
technologies? technologies?
37
Hire & fire
Short-term
Hostile
Arms-length
Retain
Collaborative
Job-hopping Long-term
Market
Transaction
Cost
Organization
Asset Specificity
38
Inter-firm Relations
Headquarters
After-
Mkt/Sales
R&D
Product
Planning 39
Institutions for Inter-firm
Relations
• LMEs • CMEs
• What are key • What are key
characteristics of characteristics of
market institutions that market institutions that
define inter-firm define inter-firm
relations? relations?
• What are key drivers • What are key drivers
that determine them? that determine them?
• What kinds of supplies • What kinds of supplies
do they prefer to buy & do they prefer to buy &
sell? Time horizon? sell? Time horizon?
40
41
Short-term Standard Long-term
transaction Specific
relationship
Market
Transaction
Cost
Organization
Asset Specificity
42
Varieties of Capitalism: LMEs & CMEs
43
CME LME
Governance Longer-term under Patient Shorter-term under Impatient
Capital involving Multiple Capital involving Prioritized
Stakeholder Engagement Stakeholder Engagement
Interfirm Less Transparent, Tacit- More Transparent, Legal, Explicit
knowledge sharing (requiring Knowledge based Contractual
Institutional Institutional
Longer-term) Captive relations
Complementarity
(requiring Shorter-term) Arms-
Complementarity
invol. extensive coordination length relations
Labor & Less Transparent, Tacit- More Transparent, Legal, Explicit
Capability knowledge sharing (requiring Knowledge based (req Shorter-
Development Longer-term) Captive relations term) Arms-length relations &
& in-house training mkt-based capability
development
(C. Ahmadjian & J. Lincoln, 2001; M. Witt, 2012; T. Ozaki, 2019) 44

Some criticisms
• Little discussion about the Source of Differences

(LME/CME)
• Difficulty of Operationalization
• Stereotypes and Simplification
• Variations and Nuances
• Impact of Globalization
• Static / Difficulty of analyzing Changes
45
Application to Japan
46
What are 4 key institutions that may
define firm behaviors under LMEs/CMEs?
• Institutions for Governance/Financing

• Institutions for Organizational Technologies/

Capabilities
• Institutions for Labor/Industrial Relations
• Institutions for Inter-firm Relations
47
• LMEs • CMEs
• What is a main source • What is a main source
of corporate financing? of corporate financing?
• How does it affect • How does it affect

corporate governance? corporate governance?
CEO evaluation? CEO evaluation?
• Purposes? • Purposes?
• Time horizon? • Time horizon?
• Uncertainty? Risk? • Uncertainty? Risk?
• Compensation? • Compensation?
48
Keiretsu
• Two types of Keiretsu
• Horizontal
• Vertical
• Horizontal Keiretsu
• Examples: Mitsui group, Mitsubishi group, Sumitomo
group, Fuyo group
• Mutual Insurance Systems
• Cross-share holdings
49
Horizontal Keiretsu as Mutual Insurance System:
• Bank-centered Conglomerates
• Cross-shareholding
• Independently managed (less than
10% of business are with other
Keiretsu firms)
Materials
• Sharing the brand value
Services Components • Helping each other especially when
difficult times arise
Construction
Bank Manufacturing
• Ensuring healthy market competition
among Keiretsu groups
Logistics Trading
50
Horizontal
Keiretsu
at
Mitsubishi
51
https://www.lesechos.fr/18/12/1998/LesEchos/17798-168-ECH_la-galaxie-mitsubishi-peine-a-changer-de-siecle.htm
• CMEs • Japan
• What is a main source • Main Bank System
of corporate financing? • Horizontal Keiretsu
(Partial)
• How does it affect • Cross-share holding
corporate governance? • Stakeholder
CEO evaluation? engagement (Bank,
• Purposes? Stockholder, Labor,
• Time horizon? Supplier, government,
• Uncertainty? Risk? community/public
• Compensation? reputation)
52
Institutions for Organizational (i.e., firms
acquiring) Technologies and Capabilities
• LMEs • CMEs
• What kinds of technologies • What kinds of technologies
and capabilities do firms and capabilities do firms
rely on? rely on?
• How does a firm acquire • How does a firm acquire
them? them?
• Investment in “Sunk cost” • Investment in “Sunk cost”
training? training?
• Relations with Labor • Relations with Labor
Mobility? Mobility?
53
Institutions for Labor/Industrial
Relations
• LMEs • CMEs
• What defines industrial • What defines industrial
relations? Hostile/Arms relations? Hostile/Arms
Length? Cooperating? Length? Cooperating?
• What is the level of labor • What is the level of labor
protection and mobility? protection and mobility?
• How do industrial • How do industrial
relations impact relations impact
strategies to develop strategies to develop
organizational organizational
capabilities? capabilities?
• How about diffusion of • How about diffusion of
technologies? technologies?
54
Lifetime Employment
• Characteristics of Japanese HR practices
• Lifetime (permanent) employment – Job-hopping is rare –
labor is less liquid and job market is small
• Seniority-based promotion and salaries – slow and gradual
promotion, no fast track, “managed” competition
• Group-based organization (responsibilities) – performance not
only individually but based on group
• Vaguely defined job descriptions – room for collaboration and
flexibility
• Enterprise union – cooperation between management and
“in-house” labor union (regular employee career path)
• Getting full commitment from players with competition and
cooperation
55
Institutions for Inter-firm
Relations
• LMEs • CMEs
• What are key • What are key
characteristics of characteristics of
market institutions that market institutions that
define inter-firm define inter-firm
relations? relations?
• What are key drivers • What are key drivers
that determine them? that determine them?
• What kinds of supplies • What kinds of supplies
do they prefer to buy & do they prefer to buy &
sell? Time horizon? sell? Time horizon?
56
Vertical Keiretsu
• Vertical keiretsu
• OEM-led Supply Chain
• Examples: Toyota – 60%, Canon –
90% of parts from Keiretsu suppliers
• Just-in-time production
• Lean manufacturing
• Small equity participation or cross-
OEM
shareholding
T1 T1 T1
• Long-term Locked-in Relationship
Suppliers Suppliers Suppliers
• Closely coordinated
T2 T2 T2 T2 T2 T2 • Competition (single source: 12%)
T3 T3 T3 T3 T3 T3
T3 T3 T3 T3 T3 T3
T3 T3 T3 T3 T3 T3
57
58
Vertical Keiretsu in Auto Industry
Y. Todo, Supply Chains in Japan, 2016

https://www.slideshare.net/yastodo/supply-chains-in-japan
59
60
Successful Japanese companies
taking advantage of CME Institutions
Main bank-
led
governance
Lifetime
Jpn firm Keiretsu
inter-firm
employment
strategy relations
In-house
training
61

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Japanese Economy &

Your name that

• Part 2 – Factory Tour

• Part 3 – Ice-breaking & Discussion

• Develop “comparative management” perspectives

• Analyzing Economies & • Mar 2

Delivering customer value profitably

Delivering customer value at cost

Toyota’s value proposition

• Transport people &

• Price = Cost + Profit < Customer Value

• Less Expensive (with

• More expensive (with

• Price = Cost + Profit < Customer Value

Inside Strength Weakness

• Do the German, Japanese, Korean and the US

• Are these economies similar to each other? Different

• Are these companies similar to each other? Different

Q2. Why are Japanese auto manufacturing companies

Q3. Why are auto manufacturing companies concentrated

Q4. How do companies maintain competitiveness if they

Inside Strength Weakness

• What are relations between countries and

• How should we analyze the question? Is SWOT

• What are relations between countries and

• How should we analyze the question? Is SWOT

• What are relations between countries and

• How should we analyze the question? Is SWOT

• CQ: Why are some countries richer, other countries

Why is it important to business?

• Are there Customers in a host country? Do they buy our

• Can we procure Resources (supplies, labor, capital,

• Can we organize Resources to create Values in a host

Input market Product

• Why are some countries richer, other countries

Differences of countries and their markets

They are similar around the world

Inside Strength Weakness

Technology SWOT Economic Technology SWOT Economic

Factor Endowment Factor Endowment

• PEST – Good start, but not enough

• Are there any general patterns between PEST factors and

• PEST – Good start, but not enough

• Institutional approach – More advanced framework

• Preparing ourselves for systematic perspectives

• Highlighting key characteristics of Japanese Economy,

• Applying the systematic perspectives to Japan to

• Chapter 4: Static Growth

• Chapter 5: Dynamic Growth

• Chapter 6: Creating Institutions

Why does an organization (company, etc) exist?

• Enforcement Costs / Monitoring Costs

• When transaction costs do not exist in the market, the

• When transaction costs do exist in the market, the

Coase Theorem as a foundation of

• Negotiation costs … (1) same as above ⇒ no need to spend

• Enforcement/Monitoring costs … (1) clear & thorough terms

• Negotiation costs … (1) same as above ⇒ need for