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The Legal Nature of the Firm and the Myth of the Firm-Market Hybrid

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Author Info
Geoffrey M. Hodgson

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Abstract

A sharp conceptual distinction used to be drawn between the firm and the market. However, since the 1970s, many economists and sociologists have argued that the boundaries of the firm are indistinct. Ideas emerged of 'internal markets' within firms, of the 'quasifirm', of 'hybrid firms' and of firms as 'quasi-markets'. This article re-examines the formal, legal conception of the firm. It is argued that there is no good reason to abandon this conception, even in the light of relational contracting, networking, subcontracting and other developments. To avoid confusion, additional terms such as 'supplier network' or 'conglomerate' should be used to describe these phenomena, rather than abandoning a legally-based definition of the firm. With this clarified definition, 'internal markets' and 'hybrid firms' disappear from view.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal International Journal of the Economics of Business.

Volume (Year): 9 (2002)
Issue (Month): 1 (February)
Pages: 37-60
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Handle: RePEc:taf:ijecbs:v:9:y:2002:i:1:p:37-60

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Related research
Keywords: Firm; Market; Relational Exchange; Internal Markets; Hybrids;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Klein, Benjamin, 1983. "Contracting Costs and Residual Claims: The Separation of Ownership and Control," Journal of Law & Economics, University of Chicago Press, vol. 26(2), pages 367-74, June.
  2. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-58, December. [Downloadable!] (restricted)
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  3. Richardson, G B, 1972. "The Organisation of Industry," Economic Journal, Royal Economic Society, vol. 82(327), pages 883-96, September. [Downloadable!] (restricted)
  4. Cheung, Steven N S, 1983. "The Contractual Nature of the Firm," Journal of Law & Economics, University of Chicago Press, vol. 26(1), pages 1-21, April.
  5. Nicolai J. Foss, . ""Coase vs Hayek": Economic Organization in the Knowledge Economy," IVS/CBS Working Papers 2001-6, Department of Industrial Economics and Strategy, Copenhagen Business School. [Downloadable!]
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  6. Anderson, Gary M & Tollison, Robert D, 1982. "Adam Smith's Analysis of Joint-Stock Companies," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1237-56, December. [Downloadable!] (restricted)
  7. Eccles, Robert G., 1981. "The quasifirm in the construction industry," Journal of Economic Behavior & Organization, Elsevier, vol. 2(4), pages 335-357, December. [Downloadable!] (restricted)
  8. Masten, Scott E, 1988. "A Legal Basis for the Firm," Journal of Law, Economics and Organization, Oxford University Press, vol. 4(1), pages 181-98, Spring.
  9. Menard, Claude, 1995. "Markets as institutions versus organizations as markets? Disentangling some fundamental concepts," Journal of Economic Behavior & Organization, Elsevier, vol. 28(2), pages 161-182, October. [Downloadable!] (restricted)
  10. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October. [Downloadable!] (restricted)
  11. Helper, Susan & MacDuffie, John Paul & Sabel, Charles, 2000. "Pragmatic Collaborations: Advancing Knowledge While Controlling Opportunism," Industrial and Corporate Change, Oxford University Press, vol. 9(3), pages 443-87, September.
  12. Kirsten Foss & Nicolai J. Foss, . "Assets, Attributes and Ownership," IVS/CBS Working Papers 00-3, Department of Industrial Economics and Strategy, Copenhagen Business School. [Downloadable!]
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  13. Greif, Avner, 1996. "The Study of Organizations and Evolving Organizational Forms through History: Reflections from the Late Medieval Family Firm," Industrial and Corporate Change, Oxford University Press, vol. 5(2), pages 473-501.
  14. Khalil, Elias L, 1997. "Is the Firm an Individual?," Cambridge Journal of Economics, Oxford University Press, vol. 21(4), pages 519-44, July.
  15. Cowling, Keith & Sugden, Roger, 1998. "The Essence of the Modern Corporation: Markets, Strategic Decision-Making and the Theory of the Firm," The Manchester School of Economic & Social Studies, Blackwell Publishing, vol. 66(1), pages 59-86, January.
  16. Imai, Ken-ichi & Itami, Hiroyuki, 1984. "Interpenetration of organization and market : Japan's firm and market in comparison with the U.S," International Journal of Industrial Organization, Elsevier, vol. 2(4), pages 285-310, December. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Nooteboom, Bart, 2006. "Organization, evolution, cognition and dynamic capabilities," Discussion Paper 41, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  2. Nicolai J. Foss, 2002. "'Coase vs Hayek': Economic Organization and the Knowledge Economy," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 9(1), pages 9-35, February. [Downloadable!] (restricted)
    Other versions:
  3. Bart Nooteboom, 2008. "In what sense do firms evolve?," Papers on Economics and Evolution 2008-12, Max Planck Institute of Economics, Evolutionary Economics Group. [Downloadable!]
  4. Virgile Chassagnon, 2008. "Qu'est-ce qu'une firme (-réseau) ?," Post-Print halshs-00374758_v1, HAL. [Downloadable!]
  5. Dick Ruiter, 2005. "Is Transaction Cost Economics Applicable to Public Governance?," European Journal of Law and Economics, Springer, vol. 20(3), pages 287-303, November. [Downloadable!] (restricted)
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