ACCOUNTING THEORIES AND APP
Critique of business model
First and foremost, a business model describes the basis of how an organization creates, delivers, and capture value i.e. economic, social, cultural, or other forms of value. The process of business model construction is part of business strategy. In theory and practice the term business model is used for a broad range of informal and formal descriptions to represent core aspects of a business, including purpose, offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies. The essence of a business model is that it defines the manner by which the business delivers value to the customers, entices customers to pay for value to customers, and to convert these payments into profits.
Business models are used to describe and classify businesses, but they are also used by managers within organizations to explore the chances for future development. Also businesses models are referred to in some instances within the context of accounting for purposes of public reporting.
When a business is established, it either explicitly or implicitly employs a particular business model that describes the architecture of the value creation, delivery, and capture mechanisms employed by the business.
Hypothetically business models can explain performance heterogeneity, perhaps as much as the traditional factors such as year, industry, and firm effects. This hypothesis is motivated by a number of antecedent theories.(Lai, Weill and Malone) review these by asset rights. Start with the Creator and Distributor models, where the emphasis is on selling asset rights. (Lai, Weill and Malone, 2006) note that the property rights literature suggests that with incomplete contracting, the firm that has the most competitive advantage in using an asset will pay the highest price to own it. This is also related to the point made in transaction cost economics. It posits that transactions that are costly–– asset-specific, uncertain, or are exchange-frequent––are more likely to be internalized within organizations, through a process of “fundamental transformation” that can reduce “opportunism.” More recently, expands this transformation to not only within but also between organizations, through contracting (Lai, Weill and Malone, 2006). For example, intangible products tend to be more asset-specific so it is might be observed that such asset types are more likely to bought and sold outright rather than be borrowed and lent (Lai, Weill and Malone, 2006). Some other products, however, might be better borrowed and lent rather than bought and sold. Returning to the Inference mentioned earlier, a durable good monopoly should prefer to lease its products rather than sell it. A whole literature has sprung up to prove the conjecture. Conversely, with competition, it is optimal to sell rather than lease (Lai, Weill and Malone, 2006). Most famously, IBM increased its sales/rental ratio as competition intensified, from 0.46 in 1966 to 1.38 in 1983, and Xerox increases its ratio from 0.28 in 1968 to 0.85 in 1983 (Lai, Weill and Malone, 2006).Again, there is some motivation that the Landlord model has performance implications. Finally, the literature on networks is explicit about the performance implications of broking. Unlike Creators, Distributors, or Landlords, Brokers seem to be useful for all types of assets. Theory seems to suggest that it is different types––brokers, dealers, market-makers––that may emerge for different asset types. For example, suggest that market-makers might be “more appropriate for trading standardized commodities and assets for which the volume is sufficiently large to produce ‘thick’ and ‘active’ markets.” .Broking has performance implications more in its suitability for only certain types of firms. This is the point made by economic sociologists, who posit that only certain firms––those in central positions––are well-placed to create and appropriate value.
Appling theories of regulation to standard setting
Societies such as USA have grown much richer today than they were 100 years ago, yet they are extensively regulated. For instance, food in such societies are grown with strictly regulated fertilizers and hormones, processed in heavily regulated factories with publicly monitored technologies, and sold in heavily regulated outlets with elaborate labels and warnings. Furthermore, the houses and apartments of such societies have their construction done under heavy regulations and children are taught in schools that offer regulated curriculae. Also, the means of transportation including vehicles, aircrafts and so on are made, sold, used and maintained under strict government regulations.
From the above illustration, it is evident that theories of regulation are applied in almost all aspects of our lives. This raise a number of questions such as: is regulation generally a good idea or has it been an obstacle to economic and social progress? (Shleifer, 2005) How much regulation of a particular activity is appropriate? Does the nature of the activity being regulated, or the characteristics of a country, influence the optimal choice? Is the level of regulation we observe in fact an outcome of efficient social choice, or are other factors as or more important? (Shleifer, 2005)
To efficiently tackle these questions, it is mandatory to first have an understanding of regulation and its meaning. When it comes to giving the definition of regulation, apparently there is no fixed definition but there are numerous attempts to define regulation. Among the attempts made, one defined regulation as the employment of legal instruments for the implementation of social-economic policy objectives. (den Hertog) From the study of regulation, two categories of regulation emerged which include economic and social regulations. Economic regulations are majorly imposed on monopolies and market structures with imperfect or excessive competition aiming at countering the negative welfare effects of dominant firm behavior and to stabilize market processes whereas social regulations involve regulation in the area of the environment, occupational health and safety, consumer protection and labor (equal opportunities and so on). In economic regulations there are two types, namely: structural and conduct regulations. Structural regulations concern itself with the regulation of market structure. For example, restrictions on entry or exit, and rules mandating firms not to supply professional services in the absence of a recognized qualification. On the other hand, conduct regulations are used to regulate the behavior of producers and consumers in the market such as price controls, the requirement to provide in all demand, the labeling of products, and rules against advertising and minimum quality standards (den Hertog, 2010).
There are two broad traditions with respect to the economic theories of regulation (Shleifer). The first tradition assumes that regulators have sufficient information and enforcement powers to effectively promote the public interest. This tradition also assumes that regulators are compassionate and aim to pursue the public interest. Economic theories that proceed from these assumptions are therefore often called public interest theories of regulation (den Hertog, 2010). The second tradition assumes that regulators do not have sufficient information with respect to cost, demand, quality and other dimensions of firm behavior. They can therefore only imperfectly, if at all, promote the public interest when controlling firms or societal activities (den Hertog, 2010).And, more importantly, it is generally assumed that all economic agents pursue their own interest, which may or may not include elements of the public interest. Under these assumptions there is no reason to conclude that regulation will promote the public interest. Economic theories that proceed from these latter assumptions are therefore often called ‘private interest theories of regulation’.(denHertog, 2010)
Therefore, to apply theories of regulation, one should consider the following four strategies of social control of the business: market discipline, private litigation, public enforcement through regulation, and state ownership. (Shleifer, 2005)
Bibliography
DenHertog, J. (2010) “Review of economic theories of regulation.” Reetrieved from http://www.uu.nl/EN/faculties/leg/organisation/schools/schoolofeconomicsuse/Pages/default.aspx
Lai, R, Weill P, and Malone, T. “Do Business Models Matter.” 26 April 2006.
Shleifer, A . “Understanding Regulation.” European Financial Management. 2005.
