Buecon Essay Research Paper Business Economics Course

Buecon Essay, Research Paper

Business Economics Course WorkEvaluate the basis of the disagreement between Williamson s and Hayek s views of theefficiency of markets. The following essay will introduce the two economists basic outlineof their respective theories. Then further try to explain the reasons for Williamson torefute Hayek s overruling ideas and to evaluate the disagreements between the twoeconomists. Firstly an introduction to the two economists. Friedrich Hayek was born in 1899in Vienna, Austria. He earned degrees in law and politics at the University of Vienna in1921 and 1923, and in 1940, he recieved the Doctor of Science degree in economics from theUniversity of London. In 1974, he was awarded the Nobel Memorial Prize in Economic Science. Oliver Williamson was born in Superior, Wisconsin in 1932. He received his Ph.D. ineconomics at Carnegie-Mellon University in 1963. He is currently Gordon Tweedy Professor ofEconomics of Law and Organisation at Yale University Louis Putterman 1989. A market, is anenvironment where business organisations do their buying and selling. Hayek furtherdescribes how markets operate as whole sphere of scattered commercial activity that goes onin the market F.V.Hayek.. This commercial knowledge of these particular circumstances oftime, place know how of a special nature where every individuals has some advantage over allothers, therefore individuals who possess this unique information of situation /circumstance. Beneficial use might be made if the person was to use this knowledge. Thisknowledge can never be collected and concentrated or integrated in a single form and givento a single source (mind or firm). This information can t also be expressed in somestatistical form but remains a highly valuable asset to the individual who possesses it. Therefore if an assumption was made that there was perfect knowledge. This would have theeffect that there would be no competitive advantage. This is due to most firms andindividuals; competitive advantage stems from possession of special knowledge about themarket and as there is no special knowledge in a perfect market; as everyone acquires thesame information therefore competitive advantage cannot exist. Planning has to be carriedout this requires the body to make decisions on how to allocate the available resources. Then the problem arises of how to gather this special knowledge from the individual so as toutilise this information to the maximum. We therefore come to a question of what sort of body is to provide for this planning. Should the planning be carried out centrally by oneauthority for the whole of the economic system or decentralised by many separate individualsi.e. competition. The half way house which Hayek talks about is where whole industriescome under central planning known as Monopolies. But as the question may arise which ofthese systems is more efficient. Where Hayek proclaims that where the fuller use will bemade of existing knowledge F.V.Hayek. The central planning is likely to succeed only if allknowledge can be gathered which ought to be used but is dispersed initially to all theindividuals. Hayek further on concludes that if all knowledge was translated as scientificknowledge then it could be concluded that the decision makers could be the various expertsin the various fields but the problem arises that Hayek says Beyond question a body ofvery important but unorganised knowledge which cannot possibly be called scientific in thesense of knowledge of general rules: the knowledge of the particular circumstances of timeand place. F.V.Hayek. If economic problems of society can be associated mainly with rapidadaptation to changes in the particular circumstances of time and place. This would havethe effect that the final decision must be left to the individuals who are accustomed withthe circumstances, who can observe the following changes directly. Therefore to obtain theresources immediately so as to meet the changes brought about. If this problem was to beresolved by a central body the effect would be that all knowledge would have to becommunicated back then after acquiring all knowledge it would have to decide what ordersto give. The answer to this is decentralising the procedure of directives to be given at alower level so as the problem can be resolved immediately. But you must remember that theman on the Spot F.V.Havek can t decide solely on the basis of his limited but intimateknowledge of the facts of his immediate surroundings since he requires further informationto make his decisions in to the whole economic framework. The individual will only beinterested in how much the good or service costs through the price mechanism not why theprices have gone up or down unless they are effecting his own environment which are causingthe fluctuations in price. This can be shown by example if a producer of good A suddenlyfinds that the demand for his good has increased as consumers switch from good B to C he isonly interested in the new demand and not of how this was bought about. The price mechanismcan be seen as mechanism for communicating information where only the most essentialinformation is passed on and passed on to only those concerned. F.V.Havek Therefore for onecompany to transact with another firm , assuming that they have varying information, theyconduct the transaction on the judgement of price; this assume that price is sufficientstatistic to perform exchange. Adam Smith also beli