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How Does Opportunistic Behavior Influence Firm Size?

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  • Christian Cordes

    ()

  • Peter J. Richerson
  • Richard McElreath
  • Pontus Strimling

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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Bibliographic Info

Paper provided by Max Planck Institute of Economics, Evolutionary Economics Group in its series Papers on Economics 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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References

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Cited by:
  1. Christian Cordes & Peter J. Richerson & Georg Schwesinger, 2011. "A Corporation's Culture as an Impetus for Spinoffs and a Driving Force of Industry Evolution," Papers on Economics and Evolution 2011-11, Max Planck Institute of Economics, Evolutionary Economics Group.

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