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Deferment and Normative Coordination (4)Filed Under: General

Time lag in this model does not take into consideration delays or deferments owing to possibilities. A possibility to link up with or be complemented by a set of alternatives at any point of time is afforded by a technological innovation. This is the first objection. The second objection is that deferment is capital and it happens not because of a “market failure.” In the Richardson-type of argument delay is undesirable. Krafft and Ravix argue for institutions that could alleviate problems of delay. These institutions can take up several forms, such as sequential contract from the property rights approaches of Hart (1988), Grossman and Hart (1990), et al., where there is information delay say due to uncertainty but there is no investment delay; or, if there is irreversible investment while there is no information delay a firm needs to make right decisions regarding profitability of a competitive investment (Dixit & Nalebuff, 1991). Other forms of coordination that might be taken up include informal market relation, licensing, strategic alliances, and
formal agreements of various sorts, vertical integration or simply integration. The nature of the institution, it is argued (Langlois and Robertson, 1995; Teece, 1980, 1986, 1988) would depend on the type and length of delay. Teece (1986) argues that if the delay is caused by an autonomous innovation (which is relatively independent of other stages of production) then several types of institutions might emerge depending on the internal capabilities of the relevant firms. In case the innovation is systemic (in which simultaneous changes in several stages of production is required) Langlois and Robertson (1995) argue that there is the likelihood of vertical integration. Similarly when there are delays in both types and the delays are long, vertical integration resolves the simultaneously present coordination problems, because the incumbent will have to generate information on strategies that other firms can implement as well as the incumbent will have to muster coordination of the entire chain of systemic innovation. In case the innovation is autonomous and the delays necessarily shorter a large number of cooperation tools would suffice. And when there is only one type of delay in market-based transactions or when both the delays are of near zero duration simple market-based relations would be able to resolve the coordination problem. Institutional arrangements of the type of vertical integration according to this argument appear necessary only under specific circumstances.

Taken From : Digital Economy – Impacts, Influences and Challenges