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This book is not another parable of Japan's economic success; it provides rich and systematic descriptions of Japanese microeconomic institutions and interprets their workings in terms familiar to Western economists. A systematic, in-depth analysis of Japanese institutions of this kind has never been available before. In making his comparative analysis of the Japanese system, the author critically examines conventional notions about the microstructure of the market economy that have strongly shaped and influenced economists' approach to industrial organization. While these notions may constitute an appropriate foundation for the analysis of the highly market-oriented Western economies, the author has found that a more complete understanding of the Japanese economy requires us to broaden such "specific" notions. Topics include the internal information structure, incentive scheme, and capital structure of the Japanese firm; corporate and bureaucratic behavior from the viewpoint of bargaining game theory; subcontract design; functions of corporate grouping; the pattern of innovation; and the possible impacts of cultural factors.
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Information, incentives, and bargaining in the Japanese economy Information, incentives, and bargaining in the Japanese economy MASAHIKOAOKI Stanford University and University of Kyoto CAMBRIDGE UNIVERSITY PRESS CAMBRIDGE UNIVERSITY PRESS Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, Sao Paulo Cambridge University Press The Edinburgh Building, Cambridge CB2 8RU, UK Published in the United States of America by Cambridge University Press, New York www. Cambridge. org Information on this title: www.cambridge.org/9780521354738 © Cambridge University Press 1988 This publication is in copyright. Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published 1988 First paperback edition 1989 Reprinted 1990, 1992, 1994 A catalogue record for this publication is available from the British Library ISBN 978-0-521-35473-8 hardback ISBN 978-0-521-38681-4 paperback Transferred to digital printing 2008 Contents List of List of tables Preface figures page viii ix xi 1. Introduction 1 2. The information structure of the J-firm 1. Stylized comparison: United States versus Japan A. Job control unionism versus integrative learning B. Centralized coordination versus the kanban system 2. The traditional paradigm of the hierarchy 3. Horizontal information structure 4. Concluding remarks 7 11 11 20 26 32 43 3. The ranking hierarchy of the J-firm as incentive scheme 1. Stylized facts A. The pay structure and promotion scheme B. The extent of lifetime employment 2. The ranking hierarchy and reputation 3. Contractual incompleteness and enterprise unionism Appendix. An illustration of the ranking hierarchy 49 54 54 60 69 86 94 4. Corporate finance, stockholding returns, and corporate governance structure 1. Stylized facts A. Corporate finance B. Returns to stockholding C. Stockholding structure D. A historical note on stockholding structure 2. Debt versus equity financing 3. The bank as a monitoring agent 99 102 102 113 116 124 127 142 5. Bargaining game at the J-firm 1. The structure of the bargaining game 150 154 vi Contents 2. Some behavioral implications of bargain outcome in theJ-firm A. Growth-seeking behavior B. Dilemma of industrial democracy C. Gift exchange of higher effort and job security D. Flexibility of earnings and work sharing 3. Historical formation of Japanese management Appendix 1. Growth-seeking behavior: an illustration of the weighting rule Appendix 2. Gift excha