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Technological Interdependencies,Specialization and Coordination A Property Rights Perspective on The Nature of the Firm

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  • Kirsten Foss
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    Abstract

    This paper develops a property rights perspective on the nature of the firm. The basic idea is that learning by doing in production and coordination stem from experience in production and that user rights over productive assets are necessary in order to accumulate the experience needed to perform improvements in production. Accumulation of skills from learning by doing in production is accelerated by specialization in production. However, specialization introduces greater complexity and new kinds of tools and equipment and this creates uncertainty about the best way of coordinating specialized interdependent activities. The result may be bottlenecks in production and uneven development of components. Experimenting in coordination is necessary in order to eliminate these problems. It is argued that the Coasian notion of firms where coordination is provided by the direction of managers provides a cheap way of conducting the experiments needed to collect information on how best to coordinate interdependent activities.

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    File URL: http://www3.druid.dk/wp/19980010.pdf
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    Bibliographic Info

    Paper provided by DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies in its series DRUID Working Papers with number 98-10.

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    Date of creation: 1998
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    Handle: RePEc:aal:abbswp:98-10

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    Web page: http://www.druid.dk/

    Related research

    Keywords: Property rights; specialization in production; firm; boundaries; learning;

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    References

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    1. Becker, Gary S & Murphy, Kevin M, 1992. "The Division of Labor, Coordination Costs, and Knowledge," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1137-60, November.
    2. Sherwin Rosen, 1987. "Transactions Costs and Internal Labor Markets," NBER Working Papers 2407, National Bureau of Economic Research, Inc.
    3. Oliver D. Hart, 1987. "Incomplete Contracts and the Theory of the Firm," Working papers 448, Massachusetts Institute of Technology (MIT), Department of Economics.
    4. Armen A. Alchian & Harold Demsetz, 1971. "Production, Information Costs and Economic Organizations," UCLA Economics Working Papers 10A, UCLA Department of Economics.
    5. Foss, Kirsten, 1996. "Transaction costs and technological development: the case of the Danish fruit and vegetable industry," Research Policy, Elsevier, vol. 25(4), pages 531-547, June.
    6. Wernerfelt, Birger, 1997. "On the Nature and Scope of the Firm: An Adjustment-Cost Theory," The Journal of Business, University of Chicago Press, vol. 70(4), pages 489-514, October.
    7. Richardson, G B, 1972. "The Organisation of Industry," Economic Journal, Royal Economic Society, vol. 82(327), pages 883-96, September.
    8. Coase, R H, 1988. "The Nature of the Firm: Origin," Journal of Law, Economics and Organization, Oxford University Press, vol. 4(1), pages 3-17, Spring.
    9. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
    10. Cheung, Steven N S, 1983. "The Contractual Nature of the Firm," Journal of Law and Economics, University of Chicago Press, vol. 26(1), pages 1-21, April.
    11. Aghion, Philippe & Tirole, Jean, 1995. "Some implications of growth for organizational form and ownership structure," European Economic Review, Elsevier, vol. 39(3-4), pages 440-455, April.
    12. Heiner, Ronald A, 1983. "The Origin of Predictable Behavior," American Economic Review, American Economic Association, vol. 73(4), pages 560-95, September.
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    Cited by:
    1. Nicolai J. Foss, 1998. "Firms and the Coordination of KnowledgeSome Austrian Insights," DRUID Working Papers 98-19, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.

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