Organizational Forms and Measurement Costs

Abstract

Under caveat emptor, buyers effect their measurements prior to exchange. Long-term relations and contracts allow buyers to measure commodities at consumption. Buyers use subjective measurements in long-term relations. Contractual guarantees shift enforcement to the state, but require objective, verifiable measurements. Most exchange agreements combine the two forms and benefit from the comparative advantage that each provides. Vertical integration reduces excessive measurement because employees gain little from manipulating commodities and information about them. The capture of quasi rent from specialized assets is just a manifestation of difficult-to-measure entities. The notion of measurement cost is more general and more operational than that of specific assets.

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