Based on the concept of legitimization, what makes organizations such as Wal-Mart and McDonald’s legitimate?
Wal-Mart and McDonalds are among the big organizations which have gone greater heights in putting their employees on public assistance. McDonalds has McResource line that advocates that the full time employees sign up for food stamps and welfare. Wal-Mart, the nation’s largest private sector employer has the largest group of Medicaid recipients. The general argument is that these organizations are bigger, richer and hence less deserving of taxpayer subsidies. However, both McDonalds and Wal-Mart are engaging in perfectly legal behavior. Though seemingly taking advantage of the taxpayer, they are operating within the law. They draw their legitimacy through the set rules. As Handel (1998), states, the firm receives legitimization to the extent that its structure and routines follow the prevailing institutional rules (Handel, 2003). The two organizations have effectively gained legitimacy through attaining a socially taken for granted character.
Describe the two behavioral assumptions on which transaction cost relies.
Opportunism
It is based on the assumption that at least some agents are given to opportunism. It is argued that, under conditions of imperfect information, all transactions are affected by the problem of self-interest seeking with guile. Given the opportunity, agents take the opportunity to serve their own interests rather than of those of the other party to the contract. The concept of actual opportunism emerges as a source of transaction costs involved in monitoring and enforcing contracts.
Bounded rationality
It refers to the recognition that human agents are subject to bounded rationality. It implies that the rationality of such agents is limited by the information they have the cognitive limitations of their mind and time that they have to make a decision. The understanding of bounded rationality is that all complex contracts are incomplete because agents have two distinct mental bounds: cognitive limitations and verbal limitations. In the application of bounded rationality, the assumption is that the actor cannot either imagine all of the possible contingencies that should go into the contract nor articulate them. It eventually leads to serious contractual difficulties which can prevent exchanges from occurring.
References
Handel. M. J. (2003). The Sociology of Organizations: Classic, Contemporary, and Critical Readings. Thousand Oaks: Sage Publications.
