The oxford handbook of capitalism

THE OXFORD HANDBOOK OF CAPITALISM CONSULTING EDITORS MICHAEL SZENBERG LUBIN SCHOOL OF BUSINESS, PACE UNIVERSITY LALL RAMRATTAN UNIVERSITY OF CALIFORNIA, BERKELEY EXTENSION THE OXFORD HANDBOOK OF CAPITALISM Edited by DENNIS C MUELLER Oxford University Press, Inc., publishes works that further Oxford University’s objective of excellence in research, scholarship, and education Oxford New York Auckland Cape Town Dar es Salaam Hong Kong Karachi Kuala Lumpur Madrid Melbourne Mexico City Nairobi New Delhi Shanghai Taipei Toronto With offices in Argentina Austria Brazil Chile Czech Republic France Greece Guatemala Hungary Italy Japan Poland Portugal Singapore South Korea Switzerland Thailand Turkey Ukraine Vietnam Copyright © 2012 by Oxford University Press, Inc Published by Oxford University Press, Inc 198 Madison Avenue, New York, New York 10016 www.oup.com Oxford is a registered trademark of Oxford University Press All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of Oxford University Press Library of Congress Cataloging-in-Publication Data The Oxford handbook of capitalism/edited by Dennis C Mueller p cm Includes bibliographical references and index ISBN 978-0-19-539117-6 (cloth :alk paper) Capitalism—Handbooks, manuals, etc I Mueller, Dennis C II Title: Handbook of capitalism HB501.O97 2012 330.12’2—dc23 2011034409 135798642 Printed in the United States of America on acid-free paper CONTENTS Preface Contributors Introduction: The Good, the Bad, and the Ugly Dennis C Mueller PART I ORIGINS The Modern Capitalist World Economy: A Historical Overview Jeffry A Frieden Legal Institutions and Economic Development Thorsten Beck Capital Markets and Financial Politics: Preferences and Institutions Mark J Roe PART II THE NATURE OF CAPITALISM The Four Types of Capitalism, Innovation, and Economic Growth William J Baumol, Robert E Litan, and Carl J Schramm The Dynamics of Capitalism F M Scherer PART III THE INSTITUTIONS OF CAPITALISM The Role of Finance in Economic Development: Benefits, Risks, and Politics Thorsten Beck Property Rights and Capitalism Paul H Rubin and Tilman Klumpp Management and Governance of the Business Enterprise: Agency, Contracting, and Capabilities Perspectives David J Teece Contracts Victor P Goldberg PART IV PROBLEMS WITH CAPITALISM 10 Capitalism as a Mixed Economic System Richard R Nelson 11 Monopoly Capitalism Keith Cowling and Philip R Tomlinson 12 Agency Problems and the Fate of Capitalism Randall Morck and Bernard Yeung 13 Executive Compensation: Governance and the Financial Crisis Martin J Conyon 14 Bubbles in Asset Prices Burton G Malkiel 15 Mergers and the Market for Corporate Control Dennis C Mueller PART V CAPITALISM AND THE STATE: DIFFERENT APPROACHES 16 Dispersed Ownership: The Theories, the Evidence, and the Enduring Tension between “Lumpers” and “Splitters” John C Coffee Jr 17 The East Asian (mostly Japanese) Model of Capitalism Hiroyuki Odagiri PART VI WITHER CAPITALISM? 18 Refounding Capitalism Edmund S Phelps Name Index Subject Index PREFACE This handbook has three objectives: (1) to describe the advantages of capitalist sytems, (2) to discuss some of their disadvantages, and (3) to describe some of the differences in capitalist systems in different countries In putting this volume together, I have been fortunate in being able to work with a great group of scholars The original outline included two additional chapters: one discussing market competition, and a second describing capitalist institutions in Europe Unfortunately, these chapters did not materialize Because the first of these would have focused on the positive side of capitalism, its absence makes the volume seem a bit more critical of capitalist institutions than was originally intended This bias would have been even greater had Thorsten Beck not offered to write a second chapter on financial markets Despite the two missing chapters, I think the diligent reader will come away with a rather complete picture of capitalism’s pluses and minuses In putting this volume together, I have been greatly aided by Heide Wurm, who has edited the essays and made sure that they are properly formatted I thank her for all of her efforts Panzar, John C., 304, 525 Papaioannou, Elias, 49, 53 Papyrakis, Elissaios, 57 Pargendler, Mariana, 88 Parigi, Bruno M., 192 Parrino, Robert, 347–48 Parsley, David C., 335 Partch, M Megan, 347 Patrick, Hugh, 513 Patterson, Patterson, 155 Peck, Simon, 384, 385 Peer, Henk, 433, 436 Penrose, Edith T., 226 Peoples, James, 318 Pérez-González, Francisco, 353 Perotti, Enrico C., 96, 101, 107, 163, 183, 192 Perotti, Roberto, 107 Perry, Michael, 497, 504 Persson, Thorsten, 46, 57, 99 Pesendorfer, Martin, 454 Peydró, José-Luis, 192 Phelps Brown, E H., 143 Phelps, Edmund S., 539, 544 Phillippon, Thomas, 189–190, 191 Pica, Giovanni, 173 Piketty, Thomas, 149–50, 155 Pinto, Pablo M., 107 Piore, Michael J., 321 Pisano, Gary, 222, 226, 227, 232, 243 Pistor, Katharina, 60, 62, 67, 68, 187, 345 Pitt, Mark M., 191 Plato, 206, 292 Polanyi, Karl, 294 Pollard, Sydney, 36 Pop-Eleches, Christian, 61 Posner, Richard A., 61, 309–10, 311–12 Postrel, Virginia, 543 Poulsen, Annette B., 335–36, 344, 347–48, 353 Pound, John, 344, 349–50 Pratten, Clifford F., 133 Prendergast, Canice, 399 Prescott, Edward C., 190, 340 Pritchett, Lant, 57 Pryor, Frederic L., 300–01, 321 Pugh, William, 335–36 Qian, Jun, 68 Quintyn, Marc, 186 Raaballe, Johannes, 393 Raddatz, Claudio, 68, 191 Raj, Manoj, 170 Rajan, Madhav V., 347–48 Rajan, Raghuram, 49, 89, 107, 167, 168, 169, 179, 189, 192, 334, 336, 340, 387, 499, 501 Ramirez, Carlos, 192, 500 Ramseyer, Mark, 88 Rancière, Romain, 174, 178 Rapaczynski, Andrzej, 216, 543 Rappaport, Alfred, 233, 234 Rau, P Raghavendra, 441, 442, 455 Rauch, James E., 67 Rauh, Joshua, 382, 388–89 Ravenscraft, David J., 429, 433 Rawls, John, 539 Razo, Armando, 192 Reenan, John Van, 392 Reinhart, Carmen M., 162, 176, 192 Reishus, David, 345 Renneboog, Luc, 502 Repullo, Rafael, 192 Reshef, Ariell, 189–190 Reuters, 245 Rey, Patrick, 165 Reynolds, Thomas H., 68 Rhoades, Stephen A., 435 Rhodes-Kropf, Matthew, 347, 445 Rice, Edward M., 335–36, 347–48 Richard, Jean-Francois, 62, 68, 68 Richardson, G B., 519, 520 Ricardo, David, 140 Ridley, Matt, 208 Rime, Bertrand, 191 Rioja, Felix K., 172, 191 Rivkin, Jan W., 351 Riyanto, Yohanes E., 170 Roberts, John, 271 Robinson, David T., 347 Robinson, James A., 40, 52, 54–58, 68, 89, 162, 186, 187, 334, 499 Robinson, Joan, 161 Robinson, Jonathan, 192 Rock, Edward B., 88 Rochett, Jean-Charles, 192 Rockoff, Hugh, 36 Rodrik, Dani, 68, 89, 155 Roe, Mark J., 84, 85, 87, 90, 91, 94, 95, 98, 103, 107, 455, 469, 472–74, 491, 495, 496, 498, 499, 500 Röell, Ailsa, 348 Rogoff, Kenneth S., 162, 176 Roll, Richard, 13, 444, 454 Romano, Roberta, 107, 341, 344, 350, 356 Romer, Paul M., 38 Rosen, Richard J., 454 Rosenberg, Nathan, 48, 155, 244, 332, 334 Rosenstein-Rodan, Paul, 350 Ross, David, 154, 306 Ross, Stephen A., 13, 223, 329 Rossi, Stefano, 88, 108, 485–86, 488, 490, 501, 502, 503 Rostovtzeff, Mikhail, 35 Rothschild, Kurt W., 300, 301 Round, David K., 431 Rousseau, Jean Jacques, 61 Rousseau, Peter L., 186, 191, 445, 451, 454 Ruback, Richard S., 330, 346–47, 430, 439–40, 454 Rubin, Paul H., 41, 204, 208, 219 Ruggie, John G., 36 Rumelt, Richard, 245 Runge, J W., 432, 435 Russel, Ellen, 323 Rusticus, Tjomme O., 224, 235 Ruttan, Vernon, 145 Ryden, Bengt, 432, 435 Ryngaert, Michael, 335–36, 345 Sabel, Charles, 259, 321 Sacher, Seth, 303 Sachs, Jeffrey D., 56, 544 Sadler, Graham V., 385 Saez, Emmanuel, 149–50, 155 Saito, Takuji, 512, 515 Sako, Mari, 520 Saks, Raven E., 378–79 Samuelson, Paul A., 339 Sanders, Peter, 229 Sandino, Tatiana, 385 Santos, Tano, 191 Sapienza, Paola, 68, 191 Saria-Allende, Virgina, 49 Saurina, Jesús, 192 Sautet, Frédéric E., 221 Say, Jean-Baptiste, 117, 141, 142 Scarpetta, Stefano, 171 Schaek, Klaus, 192 Schaller, Huntley, 454 Schankerman, Mark, 57 Scharfstein, David, 190, 330, 513 Schattsneider, Elmer Eric, 93 Schaubroeck, John, 234 Scheinkman, Jose A., 191, 393 Scherer, F.M., 141, 154, 155, 214, 215, 219, 306, 317, 429, 433 Schiffer, Mirjam, 46 Schlingemann, Frederik P., 347, 454 Schmitz, Andrew, 322 Schmookler, Jacob, 155 Schmukler, Sergio L., 192 Schoar, Antoinette, 345 Scholes, Myron, 376–77 Schonhardt-Bailey, Cheryl, 36 Schramm, Carl J., 127 Schumpeter, Joseph A., 5, 7, 13, 121, 134–35, 150, 152–53, 155, 161, 190, 212, 242, 244, 284, 329, 331, 336–37, 341–42, 346–47, 443, 536–37, 543 Schwartz, Alan, 269, 271 Schwartz, Shalom H., 63 Schwert, William G., 335–36, 347–48, 422 Schwienbacher, Armin, 107, 183 Scott, Robert E., 87, 259, 269, 270, 272 Scully, Gerald W., 68 Sen, Amartya K., 538, 544 Sen, Nilanjan, 335–36 Servaes, Henri, 350 Servan-Schreiber, Jean-Jacques, 316 Shapiro, Carl, 214–215 Shaw, Edward, 161 Sheard, Paul, 348, 512 Shedd, Peter, 218 Sheehan, Dennis P., 350 Shiller, Robert J., 339, 408, 409, 420, 424, 428, 443, 444 Shim, Jungwook, 353 Shinn, James, 98 Shirley, Mary M., 192 Shleifer, Andrei, 45, 47, 50, 51, 58, 61, 62, 63, 67, 68, 103, 181, 184, 186, 192, 221, 329, 330– 31, 334, 335, 336–37, 339, 340, 343, 348, 349, 350, 351, 353, 355, 357, 358, 423, 424, 445, 464–65, 469–71, 485–86, 491, 496, 498, 511, 514 Shuen, Amy, 222, 226, 227, 232, 243, 440, Siegel, Donald, 454 Siegel, Jordan I., 91 Siems, Mathias, 498 Simon, Daniel H., 436 Simon, Herbert, 315, 520 Simon, Julian L., 436 Simpson, John, 303 Simsek, Zeki, 234 Singh, Ajit, 431, 435 Singh, Satwinder, 306 Sirower, Mark, 337, 440 Sirri, Erik R., 190 Skaperdas, Stergios, 217 Skeel Jr., David A., 470 Skocpol, Theda, 107 Sleuwaegen, Leo, 171 Smelser, Neil J., 39 Smiley, Robert, 306, 455 Smith, Adam, 2, 5, 22, 36, 39, 48, 132–33, 137, 161, 207, 221, 281, 294, 328, 329, 331, 333– 34, 357 Smith, Brian F., 353 Smith, Bruce D., 170, 190, 191 Smith, Howard, 306 Smythe, Donald J., 501 Sokoloff, Kenneth L., 48, 89, 91, 92, 107, 127 Solow, Robert, 38–39 Sombart, Werner, 93 Sonin, Konstantin, 90 Sørensen, Bent E., 191 Sorenson, Robert, 304 Soskice, David, 90, 98, 99 Sougiannis, Theodore, 336–37 Sourafel, Girma, 434 Spamann, Holger, 389–90, 391–92, 498 Spence, A Michael, 304–06 Spiller, Pablo, 101 Spulber, Daniel F., 271 Sraer, David, 344 Stafford, Erik, 430 Stamp, 36 Stasavage, David, 46 Steer, Peter, 232 Stein, Jeremy C., 190, 330, 347, 359 Stigler, George, 192, 303, 322, 454 Stiglitz, Joseph E., 90, 163–164, 190, 191, 285, 320 Stock, James H., 421 Strahan, Phillip E., 167, 183, 188, 191 Strangeland, David, 354, 359 Stulz, René M., 63, 191, 239, 341, 347, 355, 391, 392–93, 400, 454 Sturgess, Jason, 191 Suarez, Javier, 355 Subramanian, Arvind, 68 Subramanian, Guhan, 335–36, 347–48 Subramanian, Krishnamurthy V., 50 Sufi, Amir, 192 Sugden, Roger, 300, 301, 317, 318, 320, 321 Summerhill, William, 188 Summers, Lawrence, 424 Sunami, Atsushi, 525 Sung, Nakil, 434 Sussman, Oren, 62 Sutcliffe, Bob, 306, 316 Suzumura, Kotaro, 526 Swan, Peter L., 311 Swanson, Daniel, 127 Swedberg, Richard, 39 Sweezey, Paul M., 299, 315, 322 Sylla, Richard, 191 Sylos-Labini, Paolo, 304 Tabellini, Guido, 46, 99 Tadelis, Steven, 214 Tandon, Pankaj, 214–215 Tarassova, Anna, 67 Taylor, Alan M., 36 Taylor, John B., 419 Teece, David J., 222, 224, 225, 226, 227, 229, 232, 236, 240, 243, 244 Temin, Peter, 35, 148 Teranishi, Juro, 512 Terrones, Marco, 192 Terry, Rory L., 345 Te Velde, Robbin, 301 Thaicharoen, Yunyong, 186 Thakor, Anjan V., 191, 192 Thaler, Richard, 350 Thesmar, David, 344, 345 Thisse, Jacques-Francois, 304 Thomas, Louis A., 306 Thomas, Bill, 397 Thomas, Randall S., 381 Thomas, Robert P., 39, 48 Thompson, Steve, 434 Threedy, Debora L., 272 Tian, Gloria Y., 355, 497, 504 Tiebout, Charles, 100, 358 Tirole, Jean, 191, 192 Titman, Sheridan, 347, 455 Tobin, James, 335, 336, 339 Tollison, Robert D., 36 Tomlinson, Philip R., 318, 320, 322, 323 Tornell, Aaron, 178 Torvik, Ragnar, 56 Townsend, Robert M., 192 Trebbi, Francesco, 68 Tressel, Thierry, 180–181 Trew, Alex, 190 Triantis, George G., 270, 272, 351 Tsakalotos, Euclid, 433 Tufano, Peter, 190 Tullock, Gordon, 13, 309–10, 311, 340 Turk-Ariss, Rima, 192 Turner, John, 350 Tversky, Amos, 408 Udry, Christopher, 45 Uekusa, Masu, 509 Utton, Michael, 306 Valencia, Fabian, 177 Valev, Neven T., 172, 191 Van der Elst, Christopher, 502 Van Nuys, Karen, 344 Veiga, John F., 234 Velasco, Andres, 192 Verdier, Geneviève, 186 Verdonschot, J.H., 68 Vermaelen, Theo, 441, 442, 455 Vernon, Guy, 300, 307, 322 Vernon, Raymond, 154 Verrecchia, Robert E., 191 Vig, Vikrant, 67 Vijh, Anand M., 442 Villalonga, Belén, 224, 329, 353 Visaria, Sujata, 52, 68 Vishny, Robert W., 45, 51, 60, 62, 63, 67, 221, 329, 330–31, 334, 335, 336–37, 339, 343, 346– 47, 349, 350, 353, 423, 440, 445, 469–71, 485–86, 491, 496, 498 Viswanathan, S., 347, 445 Vita, Michael G., 303 Volosovych, Vadym, 53 Volpin, Paolo F., 62, 99, 107, 192 von Thadden, Ernst-Ludwig, 96, 103, 192 Wacziarg, Romain, 107 Wachtel, Paul, 191 Wade, Robert, 526 Wadhwani, Sushil, 419, 423 Wahal, Sunil, 349 Waldsmann, Robert J., 424 Walkling, Ralf A., 347 Wallich, Henry C., 544 Wallis, John, 346, 349 Walsh, Patrick, 45 Wagner, Wolf, 192 Warner, Andrew M., 56 Warner, Jerold B., 344 Warshow, H.T., 483, 502 Watabe, Motoki, 519 Waterson, Michael, 303, 306 Watson, Mark, 421, 423 Waxman, Henry, 385 Weber, Andre-Paul, 432, 435 Weber, Max, 62, 122 Weder, Beatrice, 46 Wei, Shang-Jin, 170 Weichselbaumer, Michael, 454 Weiner, Joseph L., 235 Weingast, Barry R., 39, 88, 186, 346, 349 Weinstein, David E., 191, 513 Weisbach, Michael S., 331, 344, 345, 384 Weiss, Andrew, 163–164 Wernerfelt, Birger, 226 West, Mark D., 60 Westermann, Frank, 178 Weston, J Fred, 454 Weymouth, Stephen, 85, 107 White, Lucy, 454 Wilkinson, Barry, 529 Williamson, Dean, 190 Williamson, Jeffrey, 36, 92 Williamson, Oliver E., 54, 222, 224–226, 227, 228, 229, 231, 232, 233, 235, 236, 237, 240, 244, 302, 303, 315–16, 322, 454, 518–19 Williamson, Rohan, 63 Willig, Robert D., 304, 525 Wilson, James R., 301 Wilson, John F., 502 Wilson, Wesley W., 454 Winter, Ralph K., 107 Winter, Sidney G., 226, 244, 543 Wiwattanakantang, Yupana, 353 Woidtke, Tracie, 349 Wolfe, Simon, 192 Wolfenzon, Daniel, 40, 42, 52, 57, 340, 351, 353, 357, 511, 512 Wolff, Edward, 155 Woodruff, Christopher, 48, 50, 51, 67, 168 Woolcock, Michael, World Bank, 192, 526 Wright, Peter W., 434 Wtterwulghe, Robert, 432, 435 Wulf, Julie, 387 Wurgler, Jeffrey, 191, 330, 336, 339 Xu, Lixin C., 50, 168, 173, 191 Yafeh, Yishay, 191, 351, 353, 511, 512, 513, 518 Yamagishi, Midori, 519 Yamagishi, Toshio, 519 Ye, Lixin, 217 Yeh, Tsung-ming, 433, 434, 436 Yermack, David, 341, 348, 387 Yeung, Bernard, 40, 42, 52, 57, 63, 336–37, 339, 340, 341, 353, 354, 357, 358–59, 373, 497, 504, 511 Yoshida, Kenji, 433 Yurtoglu, B Burcin, 336, 337, 338, 347, 348, 358–59, 431, 432, 433, 434, 436, 437, 454, 497 Yusof, Fahmi M., 300, 307, 322 Zábojnik, Ján, 388 Zaeland, C van, 68 Zamarripa, Guillermo, 67 Zeira, Joseph, 172, 192 Zeitlin, Maurice, 316 Zervos, Sara, 166 Zia, Bilal H., 172 Zilibotti, Fabrizio, 164, 170 Zingales, Luigi, 51, 68, 89, 107, 167, 168, 191, 334, 336, 340, 354, 499, 501 Zinman, Jonathan, 191 Zoido, Paolo, 46 Zoido-Lobaton, Pablo, 47, 51, 67 Zou, Heng-fu, 173 Zulehner, Christine, 431, 432, 433, 436, 437, 454 Zweigert, Konrad, 68 Zywicki, Todd J., 59 SUBJECT INDEX Advertising, Agnelli pyramid, 352 Asset price bubbles economic effects of, 418, 422–23 and effcient market hypothesis, 406–407 monetary policy and, 419–22, 423 nature of, 408–09 in real estate, 414–15, 416–18 South Sea, 411–12 in stock markets, 412–16 in tulip bulbs, 410 Banks financial bubbles and, 175–79, 238–41 principal/agent probems and, 165, 169–70, 238–41 state created, 543 state ownership of, 183–85 Bretton Woods System, 30–33 Capital markets See Financial markets Capitalism See also Legal institutions, monopoly advantages of, 4–5, 12, 139–45, 281–83, 537–39 competition within, 116–17 and corporations, 3, 120 definition of, 1–3, 119, 278–81, 328–29, 536–37 disadvantages of, 5–11, 12, 147–50 economic fluctations of, 150–54, 237–41, 408–09, 541–42 financial markets, role of, 163–67, 407–08 freedom under, 538–39 and Mercantilism, 17–21 oligarchic, 119–20 reform of, 542–43 state-guided, 120 Case-Shiller Indexes, 405, 417–18, 424 Chaebols, 511–12 Cobden-Chevalier Treaty, 22 Compensation of managers, 7–8, 9–10 Contracts enforcability, 261–65 excusing performance, 266–69 interpretation of, 269–70 information and, 251–54 as legal institutions, 42–43 nature of, for managerial compensation, 372–74 termination of, 265–66 uncertainty and, 2, 251, 255–60 Corn Laws, 22 Corporate governance, see also ownership structures and individual countries boards of directors and, 344–45, 383–85 dominant sharholders and, 349–56 dual class shares and, 353–54 in East Asia, 514–18 importance of, 42, 329–31, 340–42, 356–58 shareholder democracy, 342–44 stakeholders (other), 345–46 takeovers (hostile), 346–48 Corporations principal/agent problems in, 221–24, 232–37, 329–31, 334–37 capabilities perspective of, 221–22, 226–28, 229–31 as contract nexus, 221–22, 224–26, 228–29 multidivisional, 232–34, 316 rise of, 242–44, 332–34 transnational, 316–19 Dodd-Frank Act, 397–98 Dual class shares, 353–54 Dutch East India Company, 333 East Asian Model, see also Japan and South Korea control of companies, 514–16 corporate governance in, 514–18 industrial policy in, 525–27 Effcient market hypothesis asset price bubbles and, 406–407 mergers and, 440 Ellison, Lawrence J., 7–8, Entrepreneurs and capialism, 118–19, 121–23 Executive compensation, see managerial compensation Factor shares paradox, 145–47 Financial Crisis Inquiry Commission, 390, 396–97 Financial markets, see also asset price bubbles access to, 171–72 banks and, 169–70, 238–41, 391–96 bubbles in, 11, 174–79, 189–90 crises in, 28–29 and dominant shareholders, 98 and economic growth, 163–67 and income inequality, 172–74 international trade, 170–71 managerial compensation and, 389–98 politics affecting in developed countries, 82–87 in developing countries, 87–93, 188 in Europe, 99, 103–04, 186–87 in United States, 99–104, 183 regulation of, 179–82, 239–41 Federalism and financial markets, 100–02 Free trade collapse of, 26–30 in 19th century, 22–25 Germany codetermination and capitalism, 96 Glass-Steagall Act, 95, 499 Globalization, 33–35 Gold standard, 23–24, 29–30 Great Britain, 22–24 economic rise of, Income inequality capitaliam and, 143–50 and financial markets, 172–74 and monopoly, 312–16 Industrial Revolution, 2, 11, 22–25, 129–33, 137–39 Innovation and entrepreneurs, 121–23 and capitalism, 539–40 and growth, 134–35, 137–39, 283–84 and patents, 123–25, 212–15 theory of, 135–37 James, LeBron, Japan asset bubbles in, 414–15 corporate governance in, 514–18 corporate directors in, 88 keiretsu, 511–12, 520–21 main banks in, 512–13 supply relationships in, 518–22 zaibatsu, 509–12, 522 Keiretsu, 511–12, 520–21 Legal institutions defined, 39–40, 41–45 deterninants of, 54–64 development and, 40, 48–49, 64–65 economic effects of, 49–53 international trade and, 48, 49, 53, 57 measurement of, 45–48 ownership structure and, 469–71 Lerner index, 302 Managerial compensation agency theory and, 372–74, 383–89 boards of directors and, 383–85 consultants and, 385–86 Dodd-Frank Act, 397–98 financial crisis and, 389–98 Financial Crisis Inquiry Commission, 396–97 growth of, 377–79 market forces and, 387–89 as perks, 387 principal/agent problems and, 383–89 public interest in, 371–72 stock options and, 386–87 structure of, 374–77 Market failures asymmetric information, 289–91 externalities, 288–89 general, 8, 295–98 natural monopolies, 287–88 public goods, 285–87 state correction of, 291–93 Markets, efficiency of, 281–83 Mercantilism, 17–21 Mergers, see also merger waves behavioral theories of, 426–27, 442–45, 446–48, 452–54 and efficient capital markets, 440 financing of, 452 hubris hypothesis of, 444 managerial theories of, 10–11 market for corporate control hypothesis, 441–42, 444, 448–51 neoclassical theories of, 426–27, 445, 446–51, 452–54 P/E magic and, 444 productivity, effect on, 434, 437 profits, effect on, 428–33, 437 sales, effect on, 429, 435–36, 437 shareholder returns, effect on, 437–41, 446–48 takeovers (hostile), 346–48, 441–42, 444, 448–51 wealth destruction from, 454 Merger waves evidence of, 10–11, 427–28 industry shocks hypothesis, 446, 451 managerial discretion hypothesis of, 442–44, 446–48 overvaluation hypothesis of, 445 q theory of, 445, 451 and stock market booms, 10–11, 427–28 in United Kingdom, 488 U.S wave of 1890s, 479–81 Monopoly advertising and, 303–04 collusion and, 303 entry and, 304–06 extent of, 300–02 excess capacity and, 304–06 and income inequality, 312–16 international competition and, 306–08 and social welfare, 6–8, 308–12 Moral hazard, 253–54, 373 Morgan, J.P., 475–78 Ownership structures, see also corporate governance and individual countries dispersed versus concentrated, 463–68 legal institutions and, 469–71 politics and, 472–74 Patents, 123–25, 212–15 Policy reform, 65–67 Principal/agent problems, see also compensation of managers, corporate governance, and mergers banks and, 165, 169–70 in financial markets, 163–65 managers and shareholders, 8–11, 221–24, 232–37, 329–31, 334–37 and shareholder value, 337–39 Property rights capitalism and, 3, 208–12, 216–17 definition of, 205–06 growth and, 209–10 intellectual, 212–15, 216–17 political liberalism and, 206 natural rights and, 206–07 socialism and, 207–08 utilitarianism and, 207 Rent seeking, 6–8, 56–57 Sarkozy, Nicolas, 536–37, 541 Social conflict theory, 54–58 South Korea, banks in, 513 chaebols, 511–12 corporate governance in, 514–18 supply relationships in, 522–23 South Sea bubble, 411–12 State, the as a community, 294–95 as corrector of market failures, 292–93 and economic development, 320–21 industrial policy in East Asia, 525–27 as regulator, 179–82, 239–41 Taiwan, 523 Taxes and innovation, 125 Tobin’s q country averages, 335–36 in Japan, 512 and merger waves, 445, 451 for merging companies, 449–50 Transaction costs and firms, 224–26, 228–29 Treaty of Versailles, 27 Tullip bulb bubble, 410 Uncertainty and contracts, 2, 251 United Kingdom institutional shareholders in, 487–88, 492–96 merger waves in, 488 ownership structure in, 474–75, 484–92 taxation and ownership structure, 488–89 United Nations Conference on Trade and Development, 245, 318, 323 United Nations Development Programme, 150 United States economic rise of, 26–28 institutional shareholders in, 492–96 investment bankers and ownership structure, 475–79 merger wave of 1890s, 479–81 NYSE and ownership structure, 481–83 ownership structure in, 474–75, 483–84, 489–92 populism and capitalism in, 94–95, 97–98 Wage stagnation, 147–50 Zaibatsu, 509–12, 522 ... specifying the terms of the transaction to ensure against unknown contingencies that may arise because of the long-run nature of the exchange, or to ensure against the opportunistic behavior of the other... savings and transfer them to the entrepreneurs who could profitably invest them The rise of modern capitalism thus brought with it the rise of large banks, and the development of organized stock... and the boys themselves would be much better off if they had spent the time studying algebra and chemistry Something similar happens in the world of business At the top of the Forbes list of CEO