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On the origins, meaning and influence of Jensen and Meckling’s definition of the firm

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  • David Gindis

Abstract

Jensen and Meckling’s 1976 definition of the firm as a legal fiction which serves as a nexus for contracts between individuals sits well with the Coasean narrative on the firm while at the same time being at odds with it. Available interviews with Jensen shed little light on the origins and meaning of this unusual definition. The article shows how the definition captured, and was a response to, the American socio-political context of the early and mid-1970s, and traces how Jensen and Meckling employed it once they themselves became immersed in the public debate about corporate responsibility and regulation in the late 1970s and early 1980s. It also considers Jensen and Meckling’s place in the literature on the economics of corporate law developed mostly in the 1980s.

Suggested Citation

  • David Gindis, 2020. "On the origins, meaning and influence of Jensen and Meckling’s definition of the firm," Oxford Economic Papers, Oxford University Press, vol. 72(4), pages 966-984.
  • Handle: RePEc:oup:oxecpp:v:72:y:2020:i:4:p:966-984.
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    File URL: http://hdl.handle.net/10.1093/oep/gpaa012
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    More about this item

    JEL classification:

    • B25 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Historical; Institutional; Evolutionary; Austrian; Stockholm School
    • B26 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Financial Economics
    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals

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