Theory of the Firm

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THE THEORY OF THE FIRM
tance of ownership of assets for affecting incentives when contracts
must be renegotiated (Williamson, Grossman and hart, Hart and Moore), and
some recent work on implicit contracts (Baker, Gibbons and Murphy). We
deliberate that these different perspectives on the firm should be viewed as
complementary quite than as mutually exclusive and that a synthesis seems to
be emerging.
JEL classification: K22, L22
Keywords: Principal-Agent Problems, Incomplete Contracts, Moral Hazard,
Employment Relationship, Firm Ownership, Renegotiation
1. excogitation: The Emergence of the Theory of the Firm
A extensive with households, firms have for a long cadence been a crucial part of the
explanatory set-up of economics. For example, in basic price theory, firms are
part of the apparatus that helps us mesmerism out the effect on endogenous variables
of changes in exogenous variables. But the explanatory atoms, firms and
632 The Theory of the Firm 5610
households, are not themselves treated in any detail. Thus, we have for a long
time had an economics with firms, as it were; what was missing until the 1970s
was an economics of firms.



It is only comparatively recently, in other words, that
economists have felt the need for an economic theory addressing the reasons for
the existence of the institution known as the (multi-person) line of business firm, its
boundaries relative to the market, and its internal fundamental law - to mention the
issues that are generally seen as the main ones in the modern economics of
organization (for example, Milgrom and Roberts, 1988; Hart, 1989; Holmström
and Tirole, 1989).
Although pioneering early work was done already by discourteous Knight (1921)
and Ronald Coase (1937), it was not until the mid 1970s that work really
blossomed at bottom the field, stimulated by advances in the economics of market
failures, property rights, information and uncertainty which made possible a
more rigorous fellow feeling of the sources and nature of...If you want to get a full essay, effectuate it on our website: Orderessay



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