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Institutional settings and organizational forms: Three essays

Alper Duman, University of Massachusetts Amherst


The basic goal of the dissertation is to understand how different institutional settings, technologies and social preferences could foster different, rival, or complementary organizational forms. ^ The first essay argues that as a consequence of generalized increasing returns to scale, the network externalities in advertising and marketing inhibit the emergence and proliferation of partnerships in the software industry in contrast to legal services. We first construct a model after Rowthorn and Pagano (1996) to illustrate the choice of organizational form under two different types of agency costs: high-agency costs of labor and high-agency cost of capital. Using the US Economic Census Data (1997) we find that there is a negative relationship between the fraction of partnerships in a sector and the average share of advertisement in total expenses in that sector. ^ The second essay uses a large comprehensive and new dataset on Turkish microenterprises to illustrate the importance of institutional complementarities between the credit market and the organizational choice. Employing a generalized selection model following Lee (1983), in the first stage we regress the choice of credit on selected exogenous variables and obtain the selection variable (the inverse Mills ratio). In the second stage we regress log monthly profit on variables describing firm and entrepreneurial characteristics controlling for sectors and the selection bias for separate groups of firms. The empirical results show that both the formal and the informal firms are credit constrained; indeed the formal firms are more credit constrained. Knowing this, we claim it would not be rational for the small informal firms to incur the "entry cost" of formalization if they do not have sufficient assets in the first place. ^ The third essay takes the arguments on the potential negative effects of heterogeneity on economic performances of partnerships seriously and provides a preliminary test in a very simple setting of two-agent firms. Controlling for the selection bias (endogenous choice of the organizational form by the agents) we find almost no effect of heterogeneity on the economic performances of microenterprises, proxied by monthly profit.^

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Recommended Citation

Duman, Alper, "Institutional settings and organizational forms: Three essays" (2006). Doctoral Dissertations Available from Proquest. AAI3242304.