Legal Constraints and the Choice of Organizational Form.

This paper examines the impacts of laws and property right assignments on the organization of economic activity in the Netherlands. Nonexclusivity in consumption threatens the familiar free rider problem that discourages the production of public goods in optimal amounts. State, commercial, and pay broadcasting are organizational forms that derive from differences in the structure of property rights and the cost of transacting in markets. A closer look at Dutch broadcasting clubs provides support for the relevance of the by-product theory. By law, the production of a programming guide is the exclusive right of such clubs. This suggests that the monopoly element in exclusive production rights to programming guides protects broadcasters from nonclub suppliers only and does little to suggest why more than one club should share two-thirds of all listener-viewer households. Since membership size produces revenues beyond club dues, there is some incentive for clubs to subsidize subscription purchases. Employers and employees are prohibited by law from unilaterally terminating an employment contract without the express permission of the relevant district director of labor affairs. Because of this law, use of the market, via hirings and layoffs, as a means of varying its utilization of labor resources entails a special cost to the firm. Another, if somewhat novel, substitution away from unilateral employment termination is investment by firms in job search on behalf of their workers.