Jun 28, 2014

Family-owned conglomerates in developing countries

This is a very good book by Avinash Dixit. I like a lot the discussion on institutions, auctions, insurance, and price discrimination. Do not miss the farther-reading section. 

This is one bit where Dixit explains family-owned conglomerates in developing countries from the perspective of transaction costs:

The transaction cost perspective also helps explain large conglomerates we find in many less-developed countries. There are often family owned, and span things with little in common: textiles, chemicals, cars, beverages, hotels, information technology services, and more. A rationale con be found in the effective legal system of these countries. Formal contract enforcement is unreliable; business dealings are governed by reputation and relationships. If your company has accumulated profits but the best new investments are in some other line of business, you cannot lend out the capital to an unconnected firm and hope for honest return on your investment. Instead you bring that activity under the umbrella of your own family firm, where relational aspects are stronger. The conglomerate need not create any synergies or conventional efficiencies in production. Instead it reduces governance costs.

1 comment:

  1. Be honest thanks for an interesting article. After looking through different websites.