2. Law, Economics and Organization in Proactive International Contracting A presentation at the Future Law, Lawyering, and Language - Helping People and Business Succeed May 13, 2003 Helsinki by Associate professor, dr.juris Petri Keskitalo The faculty of Law, University of Tromsoe

3. Law, Economics and Organization Key features: - human actors: >are boundedly rational >> economize >>> contracts are always incomplete >are sometimes opportunistic >are able to plan with foresight >> ex ante design of contracts that create credible commitments is essential - central economic problem for organizations is adaptation >the adaptive needs of transactions differ >the adaptive capacities of alternative mechanisms for the governance of transactions differ >transaction costs matter

4. Firm: the black box Firm

5. - Asset specificity - Frequency of transactions - Uncertainty - Markets - Hierarchies - Hybrids Transaction Cost Economics-analysis of transactions by Oliver E. Williamson: Governance mechanism Nature of business

6. Contract Contract: a ”black box” full of legal provisions?

7. Contract provisions

8. Contract type Contract provisions

9. Governance mechanism Contract type Contract provisions

10. Nature of business Governance mechanism Contract type Contract provisions

11. Nature of business Governance mechanism Contract type Contract provisions

12. HIERARCHY GOVERNANCE GOVERNANCE MECHANISMS: MARKET GOVERNANCE Organization Contracts Firm A

13. Contractual hierarchies Firm A SYMBIOSIS GOVERNANCE Organization Contracts HIERARCHY GOVERNANCE MARKET GOVERNANCE GOVERNANCE MECHANISMS: POWER MARKET ADAPTATION COOPERATIVE ADAPTATION

14. Firm A TRANSNATIONAL BUSINESS : STRATEGIESSTRATEGIES

15. Direct export sales Firm A DIRECT SALES STRATEGIESSTRATEGIES TRANSNATIONAL BUSINESS :

16. Retailer Direct export sales INDIRECT SALES Firm A DIRECT SALES Sales Agent STRATEGIESSTRATEGIES TRANSNATIONAL BUSINESS :

17. Direct export sales Firm A License agreement Franchise LICENSING DIRECT SALES Sales Agent Retailer INDIRECT SALES STRATEGIESSTRATEGIES TRANSNATIONAL BUSINESS :

18. Joint Venture Direct export sales Firm A Sales office Franchise ESTABLIHMENT ABROAD DIRECT SALES Sales Agent LICENSING License agreement Retailer INDIRECT SALES Subsidiary STRATEGIESSTRATEGIES TRANSNATIONAL BUSINESS :

19. Sales office Franchise Direct export sales Sales Agent License agreement Subsidiary GOVERNANCEMECHANISMSGOVERNANCEMECHANISMS TRANSNATIONAL BUSINESS : Firm A Joint Venture Retailer

20. Firm A Sales office Franchise Direct export sales Joint Venture Sales Agent License agreement Retailer Subsidiary GOVERNANCEMECHANISMSGOVERNANCEMECHANISMS TRANSNATIONAL BUSINESS : MARKET GOVERNANCE

21. Joint Venture Firm A Sales office Franchise SYMBIOSIS GOVERNANCE Direct export sales Sales Agent License agreement Retailer Subsidiary GOVERNANCEMECHANISMSGOVERNANCEMECHANISMS TRANSNATIONAL BUSINESS : MARKET GOVERNANCE

22. Joint Venture Firm A Sales office Franchise MARKET GOVERNANCE Direct export sales POWER GOVERNANCE Sales Agent SYMBIOSIS GOVERNANCE License agreement Retailer Subsidiary GOVERNANCEMECHANISMSGOVERNANCEMECHANISMS TRANSNATIONAL BUSINESS :

23. POWER GOVERNANCE Subsidiary Joint Venture Firm A Sales office Franchise MARKET GOVERNANCE Direct export sales Sales Agent SYMBIOSIS GOVERNANCE License agreement Retailer GOVERNANCEMECHANISMSGOVERNANCEMECHANISMS TRANSNATIONAL BUSINESS :

24. -Predict eventual problems and choose governance mechanism for the transaction - Fine-tune the chosen governance mechanism according to the ex post-adaptive needs of the transaction + incentive intensity + contractual safeguards - Remember cost effectiveness considering negotiating, designing, monitoring and enforcement of contracts + efficient use of default legal norms + efficient use of legal standards + knowledge of empirical findings in the LE&O-literature -Protect transaction-specific investments against opportunism LE&O-lessons for Proactive International Contracting:

25. The Power Point-presentation is available at: www.jus.uit.no/ansatte/keskitalo/Proactive LE&O.pps

26. The end