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Towards a Political Theory of the Firm

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  • Luigi Zingales

Abstract

The revenues of large companies often rival those of national governments, and some companies have annual revenues higher than many national governments. Among the largest corporations in 2015, some had private security forces that rivaled the best secret services, public relations offices that dwarfed a US presidential campaign headquarters, more lawyers than the US Justice Department, and enough money to capture (through campaign donations, lobbying, and even explicit bribes) a majority of the elected representatives. The only powers these large corporations missed were the power to wage war and the legal power of detaining people, although their political influence was sufficiently large that many would argue that, at least in certain settings, large corporations can exercise those powers by proxy. Yet in economics, the commonly prevailing view of the firm ignores all these elements of politics and power. We must recognize that large firms have considerable power to influence the rules of the game. I call attention to the risk of a "Medici vicious circle," in which economic and political power reinforce each other. The possibility and extent of a "Medici vicious circle" depends upon several nonmarket factors. I discuss how they should be incorporated in a broader "Political Theory" of the firm.

Suggested Citation

  • Luigi Zingales, 2017. "Towards a Political Theory of the Firm," Journal of Economic Perspectives, American Economic Association, vol. 31(3), pages 113-130, Summer.
  • Handle: RePEc:aea:jecper:v:31:y:2017:i:3:p:113-30
    Note: DOI: 10.1257/jep.31.3.113
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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