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Efficiency with Rule-Compliance: A Contribution to the Theory of the Firm in Islamic Economics

Author

Listed:
  • Tarik AKIN

    (Islamic Financial Services Board, Bank Negara Malaysia, Kuala Lumpur, Malaysia.)

  • Abbas MIRAKHOR

    (INCEIF, Lorong Universiti A, Kuala Lumpur, Malaysia.)

Abstract

The theory of the firm and the profit maximization have been important areas of debate among Islamic economists as being fore bearers of applicability of conventional economic theory in the Islamic economics. One strand of the debate holds the view that the postulate of profit maximization, as a useful theoretical construct, has to be modified for a firm operating in an Islamic economy, while the other strand highlights that Islamic economy has its own normative rules with an underlying institutional scaffolding derived from the Qur an and Sunnah. Following the second view, this paper is a modest contribution to the debate by demonstrating that once an institutional scaffolding containing the rules of behavior compliant with the Qur an and Sunnah is in place, the profit maximization postulate becomes a useful concept in Islamic economic theory. The paper also shows that allocation efficiency with equity is possible provided that the firm is rule-compliant, even in case of a monopoly.

Suggested Citation

  • Tarik AKIN & Abbas MIRAKHOR, 2016. "Efficiency with Rule-Compliance: A Contribution to the Theory of the Firm in Islamic Economics," Journal of Economics and Political Economy, EconSciences Journals, vol. 3(3), pages 560-574, September.
    • Handle: RePEc:cvv:journ1:v:3:y:2016:i:3:p:560-574
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    JEL classification:

    • P42 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Productive Enterprises; Factor and Product Markets; Prices
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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