A glimpse at how oppurtunism occurs in the running of a firm and how to counter it using very specific capital inputs .

1. Leasing Inputs and Ownership of
the Firm

2. What is a lease ?

3. Lease
A lease is a contract by which one
party conveys land , property ,
services , etc. to another party for a
specified time , usually in return for a
periodic payment .
• Lessor – refers to the party giving lease .
• Lessee – refers to the party taking lease .

4. Opportunism and Rents
• Opportunism occurs in the form of
appropriation of quasi-rents
• After an investment is made , the presence of appropriable quasi-rents leads to risk
of opportunism .
• What are “Quasi-rents”?
• The value of the asset above the next best use .
• What are “Appropriable Quasi-rents”(AQR)?
• The portion of quasi-rents in excess of an asset’s value to the next highest-valuing
user .

5. The Premise
According to research , it is found that leases are
less common for assets with specialized quasi-
rent that is appropriated by a lessor or lessee .

6. Leasing arrangements
• Capital which can be leased
come under two categories
:-
• Fixed Capital(furniture,
appliances,etc)
• Movable
Capital(buses,trucks,cars,etc)

7. Real Arrangements
• Leasing arrangements
are not ideal .
• They can be very
specific and quasi-
rent appropriated .
Eg. Trains made for
single purpose.

8. Some capital are quite specific to other assets in
a firm’s production process and are leased
rather than owned . Eg. Agricultural land

9. Eg. Different types of crops require
different types of agricultural land
Food Crops Cash Crops

10. • Land rental contracts rather than vertical integration
can be used to avoid opportunistic behavior.
• In this case, the landowner cannot pull out the asset, or reduce the quality
of the asset during litigation process .
• Irrespective of the fact what type of crop is grown , most of the time the
land is rented for commercial purposes .
Hence, we do observe that highly specific investments are made by firms .
Eg. Trees , buildings , etc.
Post-Contractual threats are not possible .

11. Brand-name capital
• The most specific asset owned by a firm is its trade name.
• It is taken under lease by another lesser known firm to gain
popularity .i.e. Collaborations
• Many a times , the lesser known firms is “extremely hesitant”
to make any investment as it would be in the goodwill of the
former firm .
• Now, quasi-rents can be appropriated by the leasing company
through increase in the rental fee saying that the brand value
has increased .
• A franchisee is basically a renter of the brand name .
• It usually shows a relationship closer to vertical integration
than to the standard contract made .

12. Conclusion
• The owners of the firm are the major
capitalists even if any kind of opportunistic
situation arises .
• We can also conclude that the generalized
capital is usually rented rather than specific
capital . This lowers the chances of
opportunism .