Summary of Week I lecture I How did the romans do it (Critical Perspectives on Management Coursera class by prof.

Rolf Strom)

Why are we talking about the grain trade?

Because the city of Rome was big Interesting State intervention; policies The city of Rome was able to sustain itself for 1/2 millennium The Romans did something really good with their market.

The romans overcame the limited information problem

Where does the information start? The seed of grain planted in the ground Where the need starts: the hungry farmer. The farmer feeds himself and his family and starts to sell the surplus Elements of a market characterized by face-to-face transactions - Good information flow: the supply chain is a chain of good information transactions,because every point in the supply chain is being transacted by parties who are assuming the transactional risks themselves. - Local competition - Avoids risks of moral hazard, adverse selection The supply chain is so long that the bread gets really expensive. So, how did the Romans do it? How did they bring down the transaction costs? Creating companies /firms (*Article: The nature of the firm) The firms handle and coordinate activities and systematically reduce transaction costs: It is cheaper to put the donkey on Salary than paying him every time With firms, a new problem arises: there is divergence between the owners and the workers = THE PRINCIPAL AGENT PROBLEM

The romans resolved the Principal Agent problem (conflict between owners and workers)
The manumitted slaves had a determinant role The key was the reputational capital: The freed Slaves had to live up to their former owner's last names. They needed to maintain the trust so they could earn a living External factors: Public institutions and agencies of regulation But internally, the conflicts were not controlled by the external agents Monitoring was impossible without fast communication Reading: "The Visible Hand" by A. Chandler The romans seemed to solve this problem by putting reputational and trust mechanisms in place

Prepared by Ariadna 73

Page 1 of 1