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Understanding Industrial and Corporate Change$
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Giovanni Dosi, David J. Teece, and Josef Chytry

Print publication date: 2004

Print ISBN-13: 9780199269426

Published to Oxford Scholarship Online: September 2007

DOI: 10.1093/acprof:oso/9780199269426.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 27 July 2021

Information, Finance, and Markets

Information, Finance, and Markets

The Architecture of Allocative Mechanisms1

(p.167) Information, Finance, and Markets
Understanding Industrial and Corporate Change

B. Greenwald (Contributor Webpage)

J. E. Stiglitz (Contributor Webpage)

Oxford University Press

This chapter provides a formal model for incorporating finance within the theory of the firm and for a more nuanced reading of the evolution of capitalistic economies. Financial markets emerged as mechanisms for ensuring the fulfilment of promises made for a return in the future in exchange for money today. The ensuing difficulties were met in part by legal changes, such as the development of limited liability and enforceable fraud standards, along with pragmatic advances in such areas of accountability as accountancy and auditing. Nonetheless, tensions remain due largely to information asymmetry problems and enforcement of difficulties. Given differing rates of return across sectors, the firm takes on the role of an important financial institution. An evolutionary process results in which deficiencies in the market give rise to new contract forms and their exploitation by some participants in the market, thus producing still newer arrangements. The evolution of financial instruments necessarily remains intertwined with the evolution of the firm.

Keywords:   financial institutions, allocative mechanisms, information asymmetry, contract forms, enforceability, firm evolution

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