A Factor For Firm Formation Economics Essay

A Factor For Firm Formation Economics Essay Firms are all around us and are the main expressers of economic activity in the modern capitalistic world. We observe firms being created, growing, evolving, expanding into new areas by merging with others but also remaining stable, declining, getting acquired and sometimes declaring bunkruptcy. It is clear that firms activities vary a lot and as a result, multiple studies regarding them have been undertaken during the course of the years. This essays purpose is to address the, perhaps, most important element associated with a firms existence, its formation, and especially the conditions and the reasons under which firms tend to form. But first, in order to be able to explain the circumstances and the factors that lead into the successful formation of a firm, a definition of it will be given. According to Jensen and Meckling, a firm is a legal fiction which serves as a focus for a complex process in which the conflicting objectives of individuals are brought into equilibrium within a framework of contractual relations (1976 p.311). The feature of the firm that makes it unique, though, is its ability to supersede the price mechanism, one of the pylons on which the whole economic theory is based, with decisions taken by the firms agents upon real-life situations and which, in most cases, deviate from what the economic theory through the price mechanism dictates (Coase 1937 p.390). Of major importance in this essay is the attempt to present, describe and evaluate the existence of transaction costs, which is a key aspect of Coases, Arrows Williamsons and Di Maggios analyses of the reasons why firms are formed. However, although it is crucial in understanding the genesis of a firm and its explanatory capability is invaluable, economising on transaction costs theory does not provide a sole explanation of it and other factors must be taken into account in order for us to have a clearer picture of the situation. The purpose and length of the essay does not provide the possibility to elaborate in a thorough and complete way about those factors, but technological advances and entrepreneurial spirit and creativity will be outlined and briefly explained. Moreover, for a successful firm creation to take place, there are many conditions that need to hold true, some of which will be presented in the following analysis. These are: widely understood rules when it comes to go verning a firm, and analytical planning before the actual formation of the firm. Transaction Costs Theory: Both a condition and a factor for firm formation As argued by the title given above, the transaction costs theory can be seen as both a condition and a factor on which a successful firm formation relies, depending on how the reader perceives the situation. The existence of transaction costs is a condition for firms to arise, but the process by which the economic agents economise on transaction costs is probably the most crucial factor that drives firm formation and that is why it will be analysed separately from the other conditions and factors. The main reason for a firms formation is the cost of using the price mechanism by which the economic system is being run (Coase 1937 p.390; Arrow 1969 p.70). Or, according to Williamson, a firm is the product of a series of organisational innovations that have had the purpose and effect of economising on transaction costs (1981 p.1537). More specifically, organising production through the price mechanism enables an obvious transaction cost of finding out what the current prices of interest are. Even if specialist price finders existed, this type of cost would not be totally eliminated (Coase 1937 p.390). As it can be understood, this more realistic theory contradicts with the theoretical model of the economy, in which there is perfect price information to all agents. But what is understood of transaction costs and what actions do firms take in order to reduce them? Transaction costs are mainly the costs of deciding, haggling, arranging and coordinating actions that constantly take place in the market, as Paul Di Maggio has argued (2001 p.8). Furthermore, they include the creation of contracts for each separate transaction that occurs in the market. As firms are created, these contracts are not eliminated but they are greatly reduced, since the founder-manager of the firm does not have to create contracts for every single transaction in which his/her company participates, as implied by the economic theory. Through this procedure, multiple costs are avoided, because the so called marketing costs are strictly reduced. For example, only one contract per employee is needed, in which the relationship between him and the firm (and its agents) is clearly stated. That will include the amount and the way of payment, the working hours and the certain limits within which the employee will have to obey the employer (Coase 1937 pp.390-393). Further methods that firms use in order to minimise transaction costs are the introduction of repetitive and predictable activities for their employees, by giving duties to them through a clear job description, eliminating the possibility of negotiations about the allocation of tasks. As a result, employers have more time to deal with important issues and decisions concerning the firm. In addition, the fair treatment to employees provided by the firms environment guarantees the reduction of transaction costs, since there is a specified reward-punishment system that everybody abides by, that results to immediate elimination of conflicts (Di Maggio 2001 pp.8-9). Regarding the same topic, Williamson has argued that pre-contract negotiation and task and deliverables specification will reduce the necessity for periodic interventions to check the progress of the contracts execution and its successful comple tion (1981 p.1544). Another crucial question about the transaction costs touches upon the reason of their existence. Related to it are two behavioural assumptions: bounded rationality and opportunism. According to the bounded rationality theory, people are less competent in calculations and are not able to account for every issue that is contract-related and therefore are transaction costs created. Moreover, people are opportunistic and unreliable, because they, many times, act having just their personal interest in mind. Consequently, it is possible that they are going to behave in a non-trustworthy and irresponsible way (Williamson 1981 pp.1544-1546). As it has been presented above, a key factor for a firms formation is the deviation from the economic model that portrays humans as perfectly rational beings that make right choices and have no flaws. As a bottomline, Coases writing about firm growth and expansion should be mentioned, according to which firms grow as their entrepreneurs undertake additional transactions exchange transactions that are co-ordinated through the price mechanism and try to expand until the costs of organising an extra transaction within the firm, equals the cost of carrying out the same transaction by means of an exchange on the open market or the costs of organising in another firm (Coase 1937 p.393, p.395). This is important because we are able to grasp how the second major challenge that firms founders face, the growth of their firm, after, of course, the successful formation of the firm, is illustrated based on the transactions theory described earlier. Conditions under which firms are formed Apart from transaction costs, there are also other conditions that need to hold true in order for a firm to be successfully constituted. A set of widely understood and fairly applied rules is essential, because they deter employees from using firms to seek their personal interest and urge them to contribute to achieve the firms goals. Perhaps the most important rule has to do with the hierarchy of the organisation, that is who gives orders to whom and who has the last call, when decision-making is involved. Secondly, clear admission and promotion criteria need to be established, so that firms transparency is maintained, and lastly routines for the performance of work need to exist, in order for deliverables to be easily checked in terms of integrity. Generally, rules within a firm serve a double role by specifying who does what work and by dictating which behaviours are worth rewarding and which punishing (appraisal punishment system) (Di Maggio 2001 p.8). Of major importance, when it comes to explaining the circumstances under which a firm is brought to life, is the planning that the entrepreneur(s)-founder(s) of the firm has/have to do before he/she/they can actually start building it, since a business plan, according to Delmar and Shane, turns abstract goals into concrete operational steps and therefore is crucial for both a firms existence and success. What is meant with the term business planning is the effort that firm founder(s) need(s) to make so that he/she/they gather(s) the appropriate information about a business opportunity and the action of finding and understanding how this information will be used to give birth to a new organisation that will try and make use of this opportunity (2003 p.1165). Through business planning the founder(s)-manager(s) of the firm is/are going to be able to spot and capitalise in a more efficient and risk-free way on the reduction of transaction costs. Without planning, a firm can not in most c ases fulfill its ultimate goal, survival, and the most sought after one, profit maximisation. Factors that drive firm formation Why is a firm created and what are the key factors that lead to its formation are two closely related questions that will be discussed in this section of the essay. One of these factors is technology and its regime that, according to Shane, includes four dimensions age of technical field, tendency of the market towards segmentation, effectiveness of patents and importance of complementary assets in marketing and distribution which affect the trend for inventions to be exploited through new firms formation (2001 p.1188). This formation is the reaction of potential entrepreneurs when they observe that specific domains of tecnology exploitation are profitable. Concluding, technology is crucial because it has become the main reason for innovation and that is the force that drives firms to the creation of new products, services and processes (Chandler 1959 p.25). Yet another factor that leads to firm formation is the creativity that a person shows, when he/she observes an opportunity to make profits through the creation of a product or provision of some kind of service. This creativity is referred to as entrepreneurship and is associated with spirit, vision and alertness to business opportunities that a person needs to possess (Lee, Florida and Acs 2004 pp.889-890). Whether someone possesses the gift of entrepreneurship or not, is determined by regional variation and characteristics such as population size, industrial structure, human capital capacity and financing availability (Armington and Acs 2002 p.37). A useful claim about entrepreneurship was made by Stuart and Sorenson who argued that firms founding rate is affected by social ties and the entrepreneurs need to reside near resources that they find necessary to mobilise (2003 p.229). Finally Schumpeter, when talking about his concept of creative destruction, he underlined the responsibi lity that independently owned firms bear for reforming or revolutionising, another indicator of the importance of entrepreneurship for firm formation as well as growth (1942 p.132). Conclusion To sum up, although there is no doubt that the firm is an important and complex institution, according to Williamson there seems to be disagreement when it comes to examining the conditions and the reasons that underlie its formation (1981 p.1537). However, much of firms formation literature and analysis relies on the existence of transaction costs and the firms attempts to economise on them. The deviation from the markets theory of organising the economic activity to the firms alternative one, brings upon the two behavioural assumptions bounded rationality and opportunism that introduce reality into the model and cease portraying human beings as perfectly rational. Apart from transaction costs, more conditions and firm formation factors are described in order for the analysis to be more complete within the length limit of this essay. Lastly, since the firms will always be in the centre of the economic activity, and as the state of the world and peoples behaviour change through tim e, it is possible that when similar analyses are to be conducted in the future, new findings regarding the reasons and the conditions under which firms arise, will be discovered that might as well change our perspective.

Bottled Water Essay

A couple of decades ago, people turn to the tap for drinking water. Now, most people, both young and old, drink water from bottles. In fact, the demand for bottled water is so great that it has become a multimillion-peso business in the country today. Why is there a substantial growth in the demand for bottled water? The main reason is the increasing health consciousness of the people. Many people prefer bottled water because they question the cleanliness of tap water. The quality of tap water has been decreasing. To be safe, people choose bottled water to avoid drinking water that may be contaminated with harmful microorganisms. Contaminated water can cause diarrhea and other stomach disorders that kill, like dysentery, gastroenteritis, amoebiasis, cholera, and hepatitis. Mostly, the bottled water that you buy is either mineral water or purified water. Water plants use surface water or ground water as the main raw material. These plants are located in places far from cities and industrial centers to avoid contamination. MINERAL WATER Mineral water comes from mineral springs. It normally contains a high content of mineral salts or gases, and which consequently may have an action on the human body different from that of ordinary water. Mineral waters are usually classified as alkaline, saline, chalybeate (iron-containing), sulfurous, acidulous, and arsenical. Mineral springs are generated deep underground, where, under intense heat and pressure, calcium, iron, potassium, sodium, and other minerals are leached from the surrounding rocks. Mineral water is also called aerated water. (The term â€Å"aerated† means charged with gas.) The most common gases that are in mineral water are carbon dioxide and hydrogen sulfide. GUIDELINES FOR BOTTLED MINERAL WATERS There are strict rules for water to be labeled as mineral water. Genuine mineral water should contain the right percentage of such minerals as manganese, chromium, selenium, zinc, potassium, magnesium, phosphorus, calcium, and other minerals. In California, United States, to be labeled â€Å"mineral water,† the water must contain 550 parts per million (ppm) of total dissolved solids (TDS). In Europe, mineral water must meet several criteria. One is that the water must flow freely from its source, meaning it may not be pumped or forced from the ground, and the water must be bottled directly at its source. Furthermore, the water’s properties, such as its temperature, mineral balance, and pressure have not varied in ten years. Some better known brands of mineral water in Europe include Evian and Ferrier of France, Ferarrele of Italy, and Apollinaris of Germany. All these conatin 330, 560, 1,400, and 2,250 ppm of TDS, respectively. MEDICINAL EFFECTS OF MINERAL WATER It has long been believed that mineral springs possess great curative powers. In fact, people have used mineral water since ancient times to cure such ailments as rheumatism, skin infections, and poor digestion. Also, many effervescing waters (impregnated with carbon dioxide gas) are used as table beverages and to dilute spirits or wines. Because of the springs’ medicinal effects, medicinal spas have been built around mineral springs. These spas are frequented by people who are hoping that the spring’s waters will relieve them of their ailments, such as gout, liver trouble, indigestion, and rheumatism. DISTILLED WATER Water that is treated by the process of distillation forms distilled water. This substance is purer than the original water because salt and other impurities do not evaporate with the water. Distillation is the principal method for purifying water. In this process, the water is vaporized into steam, the steam is condensed back into liquid water, and the water is collected in a separate container, leaving behind the impurities. Other methods of water purification include chlorine treatment, ozone treatment, ultraviolet decontamination, and oxidation-reduction media. Also, one method of water purification is with the use of iodinated resin. Iodinated resin can destroy even the smallest viruses through electrostatic attraction. Negatively charged contaminants are drawn to the positively charged resin. This ensures contact, no matter how small the microorganisms that might otherwise escape if filters are used. Upon contact, the resin releases sufficient iodine to penetrate and kill the microorganisms. PRODUCING SAFE, PURE WATER One of the most effective methods of producing safe, pure water consists of a three-step process. The first step is the use of sediment filters to remove large particles. The sediment filter acts to screen out suspended matter and can also remove many harmful bacteria and protozoa that may be present in the water. The second step is to purify the water through the use of iodinated resin. This devitalizes even the smallest harmful microorganisms within the water. Biological contaminants could also be removed by exposure to ultraviolet light, killing the microorganisms that may still be in the water. The third step is the use of carbon filters to remove taste- and odor-causing contaminants. The filter’s activated carbon and its ion exchange resin remove unwanted ions and molecules from water, leaving those that make water  pleasant to drink. The activated carbon also initiates a chemical reaction that converts free chlorine, which water utilities put in water to kill germs, into chloride and hydrogen ions, which are safe and taste all right. Other systems in bottling water consist of several steps that utilize both purification and filtration processes. In some systems, water is passed through as many as 16 stages in the whole process. Water is an all-important substance that sustains life here on earth. However, safe, pure water is becoming a rare commodity everywhere. Bottled water, whether mineral or distilled, offers safe drinking water for all of us.

The Impact Of Media On Indigenous Collective Action

One of the most famous images within Canadian history is that of a tense moment between two men facing each other. The image shows a masked armed indigenous man leaning over the smaller soldier before a moment of apparent confrontation. On one level, the image itself is colonial portraying the soldier as keeping the peace against the unknowable â€Å"other.† Thereby in many parts this image misrepresents the complex reality of the situation and the history surrounding the Oka confrontation. But this image represents more then merely the Oka crisis, but rather the often one sided portrayal of Indigenous people within the media. The media has played an important role in shaping perception on Indigenous collective action. But like the photo†¦show more content†¦There are two national media controversies in the summer of 1990. The first involved the controversy surrounding the stopping of the Meech Lake Accord by Elijah Harper who an act of protest initiated a filibuster before the accord’s deadline. The second crisis beginning in July 11, 1990 involving a 78-day armed standoff between the Mohawk nation of Kanesatake, the Quebec provincial police, and the Canadian armed forces near the town of Oka, Quebec which became known as the Oka Crisis. The events began in June 30, 1990 when the municipality of Oka was granted a court injunction to dismantle a peaceful barricade erected by the people of Kanesatake in an effort to defend their sacred lands from further encroachment by non-Native developers. The event and the standoff brought wide spread reactions from across Canada and the world. Despite many facts and details being well known there was a level of ambiguity around the events. For example, few reporters at the time conducted interviews with residents behind the blockade. 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