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How Does Opportunistic Behavior Influence Firm Size?

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Author Info
Christian Cordes ()
Peter J. Richerson
Richard McElreath
Pontus Strimling

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Abstract

This paper relates firm size and opportunism by showing that, given certain behavioral dispositions of humans, the size of a profit-maximizing firm can be determined by cognitive aspects underlying firm-internal cultural transmission processes. We argue that what firms do better than markets – besides economizing on transaction costs – is to establish a cooperative regime among its employees that keeps in check opportunism. A model depicts the outstanding role of the entrepreneur or business leader in firm-internal socialization processes and the evolution of corporate cultures. We show that high opportunism-related costs are a reason for keeping firms’ size small.

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Paper provided by Max Planck Institute of Economics, Evolutionary Economics Group in its series Papers on Econonmics and Evolution with number 2006-18.

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Date of creation: Nov 2006
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Handle: RePEc:esi:evopap:2006-18

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Keywords: Theory of the Firm Transaction Cost Economics Cultural Evolution Opportunism Cooperation Length 21 pages

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Find related papers by JEL classification:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
M14 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Corporate Culture; Social Responsibility
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis

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