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On the Nature and Scope of the Firm: An Adjustment-Cost Theory

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  • Wernerfelt, Birger

Abstract

The author compares the alternative game forms for situations where a buyer needs a sequence of human asset services. The hierarchy is defined as a game form in which the parties engage in once-and-for-all wage negotiation, the boss describes desired services sequentially, and either party may terminate the relationship at will. If many diverse and frequent adjustments are needed, this involves lower adjustment costs than any alternative game form. The price list game form is better when the list of possible adjustments is small and the negotiation-as-needed game form is better when adjustments are needed infrequently. An empirical test supports the theory. Copyright 1997 by University of Chicago Press.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 70 (1997)
Issue (Month): 4 (October)
Pages: 489-514
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:ucp:jnlbus:v:70:y:1997:i:4:p:489-514

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Coordination Problems in the Theory of the Firm
    by Nicolai Foss in Organizations and Markets on 2010-12-28 16:49:01
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
Cited by:
  1. Jukka Kaisla, . "Extending the Constitutional Theory of the Firm by Introducing Conventions," IVS/CBS Working Papers 2001-10, Department of Industrial Economics and Strategy, Copenhagen Business School.
  2. Nicolai J. Foss, 1997. "Incomplete Contracts and Economic Organization Brian Loasby and the Theory of the Firm," DRUID Working Papers 97-11, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  3. Kirsten Foss, 1998. "Technological Interdependencies,Specialization and Coordination A Property Rights Perspective on The Nature of the Firm," DRUID Working Papers 98-10, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  4. Oliver Hart, 2007. "Hold-up, Asset Ownership, and Reference Points," NBER Working Papers 13540, National Bureau of Economic Research, Inc.
  5. Steven Tadelis, 2002. "Complexity, Flexibility, and the Make-or-Buy Decision," American Economic Review, American Economic Association, vol. 92(2), pages 433-437, May.
  6. Kirsten Foss & Nicolai J. Foss & Peter G. Klein, 2006. "Original and Derived Judgment An Entrepreneurial Theory of Economic Organization," DRUID Working Papers 06-09, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  7. Kam Ki Tang & Leopoldo Yanes, 2008. "The Hierarchical Structure of the Firm: A Geometric Perspective," Discussion Papers Series 362, School of Economics, University of Queensland, Australia.
  8. Wernerfelt, Birger, 2004. "Robust Incentive Contracts," Working papers 4448-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  9. Kirsten Foss & Nicolai J. Foss, 1998. "The Market Process and The Firm Toward a Dynamic Property Rights Perspective," DRUID Working Papers 98-14, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  10. Pierre Azoulay, 2004. "Capturing Knowledge within and across Firm Boundaries: Evidence from Clinical Development," American Economic Review, American Economic Association, vol. 94(5), pages 1591-1612, December.
  11. Oliver Hart & John Moore, 2007. "Contracts as Reference Points," ESE Discussion Papers 170, Edinburgh School of Economics, University of Edinburgh.
  12. Pierre Azoulay, 2003. "Acquiring Knowledge Within and Across Firm Boundaries: Evidence from Clinical Development," NBER Working Papers 10083, National Bureau of Economic Research, Inc.
  13. 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.
  14. Wernerfelt, Birger, 2003. "Indirect Adjustment-Costs Under Alternative Coordination Regimes," Working papers 4336-01, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  15. Wernerfelt, Birger, 2003. "Governance of Adjustments," Working papers 4412-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  16. Wernerfelt, Birger, 2003. "Organizational Languages," Working papers 4278-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  17. Wernerfelt, Birger, 2003. "Resources, Adjustments, and Diversification: Evidence from Production Functions," Working papers 4277-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.

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