Firm as a Nexus of Markets
The Austrian School's conventional theory of the firm is based on an attempt to synthesize Coase's concept of the firm as a centrally planned hierarchy with the Austrian theory of entrepreneurship and monetary calculation. This paper is a critique of that program as well as an attempt to outline the alternative theory of the firm, one based on the synthesis of the contractual agency theory of the firm (Alchian-Demsetz, Jensen-Meckling) with the same Austrian arguments about entrepreneurship and calculation. The firm in this paper is defined as a nexus of various markets for goods as well as for labor and managerial services rather than as a hierarchy or organization. Both the neoclassical and Austrian critiques of the latter concept are utilized to prove that a clear distinction between the market and the firm cannot be established. That distinction is based on the misunderstanding of the firm's dynamics as exclusively tied to the managing/transaction costs ratio as well as on the mischaracterization of inter-firm relations as commanding ones (Demsetz-Alchian, Jensen, Meckling, Fama, Cheung). On the other hand, the central planning view of the firm is equally at odds with the key Mises's argument that rational economic planning is impossible in the absence of market prices (Mises, 1990). If this is so, the firm, as understood in a Coasian paradigm, would not have any reason to exist, or any reason to contribute positively to economic efficiency, because it would simply represent a centrally planned island of incalculability in a wider market setting (Rothbard, 2004). Since the firm is a nexus of various markets, its operation is contrary to the Coaseian assumptions led by the price signals. Only insofar as the internal firm's operation is driven by the price signals can the firm be efficient.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 16 (2010)
Issue (Month): 1 (October)
|Contact details of provider:|| Web page: http://www.degruyter.com|
|Order Information:||Web: http://www.degruyter.com/view/j/jeeh|
When requesting a correction, please mention this item's handle: RePEc:bpj:jeehcn:v:16:y:2010:i:1:n:3. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.