MGEC40H3 Lecture Notes - Lecture 2: Erms
13 Dec 2018
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Lecture 2- january 12: historical perspectives, business in north america in 1840, poor transport and communications: horses mainly. Very little railtrack, telegraph was new, expensive: primitive finance: businesses mostly partnerships, hard to raise capital by issuing debt, equity; no credit bureaus so hard to get loans; no futures trading. Hard to hedge, no insurance markets: in general, firms had poor information and substantial price risk (example of potato farmer), therefore, firms tended to be small, informally-organized, family-run, with limited geographic and product-level scope. Large scale investments in capital and infrastructure were too risky. Many intermediaries: business in north america in 1910, assembly line and mass production technologies allowed (and required) higher volumes, transport dominated by railroads. Telegraph and telephone allowed long- distance communications: finance: share trading easier; credit bureaus created access to credit. Public disclosure of accounting mandatory; this increased confidence, investment: all this allowed and in some cases required firms to become larger, therefore, firms vertically integrated.
