Discrete Choice, Censored Regression, and the Costs of Organization

  • Scott E. Masten


This chapter reviews the approaches used in strategic management and economics to assess the normative validity of business decision rules, that is, whether prescribed strategies and practices are likely to lead to superior performance. While economists tend to assess theories of business behavior in terms of their predictive ability, the success of a theory in predicting managerial behavior tells us little about that theory’s value as a normative guide to business decision making. The strategic management research relating strategic and organizational choices to firm performance generally fails to account for the systematic selection of strategies and organizational forms, however. To the extent the strategies and organizational forms managers adopt reflect expected performance, least squares estimates of the relation between firm behavior and performance will be biased. The chapter discusses procedures for correcting selection bias and reviews a pair of recent empirical studies that illustrate its importance.


Firm Performance Organizational Form Entry Mode Transaction Cost Economic Governance Arrangement 
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Copyright information

© Springer Science+Business Media Dordrecht 1997

Authors and Affiliations

  • Scott E. Masten
    • 1
  1. 1.University of Michigan Business SchoolUSA

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