Interconnection, Integration, and Holding Company: Three Institutional Approaches to Electric Power Network Coordination in the Early 20th Century

Karen Clay (Carnegie Mellon University)
Lynne Kiesling (Carnegie Mellon University)

Abstract : Physical coordination has been a challenge in electric power networks since their invention in the late 19th century. Coordinating the generation and delivery of supply and demand in a system that requires real-time balance is essential, and both technological and institutional innovations emerged as approaches to grapple with network coordination. In this paper we employ institutional and organizational economics to examine three organizational approaches to coordination that emerged in the early 20th century: interconnection, integration, and holding companies. Interconnection of separately-owned distribution systems using high-voltage transmission lines provided reliability benefits when the systems faced uncorrelated demands, but posed organizational and incentive problems due to the asset specificity of the relevant capital assets (Williamson 1983). Integration (both horizontal and vertical) through acquisition and merger addressed some of these problems, and led to considerable industry consolidation through the 1920s. A third approach was holding companies that took ownership stakes in operating companies as a way of using financial structure to create larger networks. A holding company enabled one firm to gain operational control of multiple utilities (Hausman & Neufeld 2004). We analyze spatial/regional differences in the uses of these organizational approaches. Specifically, we exploit the exogeneity of hydroelectric power (due to geography) to test whether holding companies were more prevalent in regions where physical coordination was more challenging and costly. Hydroelectric power plants are spatially immobile (and thus exogenous) and their capital has asset specificity and is non-redeployable. We test the hypothesis that states with lower population density have a higher demand for interconnection, and thus experience earlier adoption of the holding company structure than other states, using data from the Census of Electrical Industries 1902-1937.

Digital Transformation of the Italian and Us Automotive Supply Chains: Evidence from Survey Data

Ruggero Colombari (Politecnico di Torino)
Aldo Geuna (Università di Torino)
Susan Helper (Case Western Reserve University)
Raphael Martins (New York University)
Emilio Paolucci (Politecnico di Torino)
Riccardo Ricci (Politecnico di Torino)
Robert Seamans (New York University)

Abstract : We provide results from a detailed survey of automation and digitization in firms in the automotive sectors in the United States and Italy. In both countries, we find evidence of heterogeneity of organizational architectures—some firms organize around a “Taylorist” approach and others around a pragmatic approach. We find some notable differences in the adoption and use of new technologies, particularly robots. In the US, robots are considered an effective tool to address skill shortage, but not as much in Italy. This is partly explained by the fact that in the US finding workers who possess the desired skills is seen as a major challenge. Italian firms attribute to robots a higher impact on improving safety conditions in the shop floor. This might explain why Italian firms have adopted more technologies for parts tracking, given they are frequently used to trace all the production processes to guarantee product safety. Overall, firms in both countries appear more likely to adopt robots to increase quality rather than to reduce unit and labor costs. Despite technology adoption is underway (though more in the US), we found that companies in both countries (especially in US) are not automating data collection suggesting that firms are not utilizing the new automation and digitization technologies to their fullest extent but in the “old” way.

Why Choose Ltas: an Empirical Study of Ohio Manufacturer's Contractual Choices Through a Bargaining Lens

Juliet P Kostritsky (Case Western Reserve University)
Jessica Ice (Case Western Reserve University)

Abstract : This paper contributes to recent scholarship regarding Long Term Agreements (LTAs) by providing empirical evidence that suppliers are more likely to undertake the costs of an LTA if the transaction requires significant capital expenditures or the potential for large sunk costs. Through a survey of a random group of 63 Ohio supplier/manufacturers, the paper explores why supplier/manufacturers with a full range of contractual and non-contractual solutions might choose one set of arrangements over others. It then seeks to link its findings to a broader theory of how parties bargain to solve durable problems under conditions of uncertainty, sunk costs and opportunism, while minimizing costs. Although only a small portion (17%) of our sample size indicated that they used LTAs in the majority of their transactions, this group indicated they were more likely to produce customizable goods and have significant capital expenditures. Such a finding is consistent with a model of bargaining in which parties in a transaction seek to achieve their overall goals of wealth maximization while minimizing costs under conditions that include bounded rationality, sunk costs and opportunism.