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Towards a Political Theory of the Firm

Listed author(s):
  • Luigi Zingales
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    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.

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    File URL: https://www.aeaweb.org/articles?id=10.1257/jep.31.3.113
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    Article provided by American Economic Association in its journal Journal of Economic Perspectives.

    Volume (Year): 31 (2017)
    Issue (Month): 3 (Summer)
    Pages: 113-130

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    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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    1. Raghuram G. Rajan & Luigi Zingales, 1998. "Power in a Theory of the Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 113(2), pages 387-432.
    2. Aghion, Philippe & Akcigit, Ufuk & Howitt, Peter, 2014. "What Do We Learn From Schumpeterian Growth Theory?," Handbook of Economic Growth,in: Handbook of Economic Growth, edition 1, volume 2, chapter 0, pages 515-563 Elsevier.
    3. Henry G. Manne, 1965. "Mergers and the Market for Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 73, pages 110-110.
    4. Raghuram G. Rajan & Luigi Zingales, 2001. "The Firm as a Dedicated Hierarchy: A Theory of the Origins and Growth of Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 116(3), pages 805-851.
    5. Stephen Ansolabehere & John M. de Figueiredo & James M. Snyder Jr, 2003. "Why is There so Little Money in U.S. Politics?," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 105-130, Winter.
    6. Stephen Ansolabehere & John M. de Figueiredo & James M. Snyder, 2003. "Why Is There So Little Money in Politics?," NBER Working Papers 9409, National Bureau of Economic Research, Inc.
    7. Henry G. Manne, 1965. "Mergers and the Market for Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 73, pages 351-351.
    8. John Haltiwanger, 2016. "Firm Dynamics and Productivity: TFPQ, TFPR, and Demand Side Factors," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, vol. 0(Fall 2016), pages 3-26, October.
    9. Jeffrey R. Brown & Jiekun Huang, 2017. "All the President’s Friends: Political Access and Firm Value," NBER Working Papers 23356, National Bureau of Economic Research, Inc.
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