The BC and AC Economics of the Firm

This paper provides an initial rational reconstruction of Coase ?Ts unmistakable way of doing economic analysis in a manner coherent with his objectives (and mine). It is founded on his microanalytics as extended, refined and clarified by Williamson, Alchian, Demsetz, MACnard, Foss, among others. It goes without saying that it does not purport to answer the impossible question of ?owhat did Coase really say? ?Ý. Firms are normally depicted in marginal analysis as almost exclusively concerned with possible costs and revenues: as having a profit-and-loss account but no assets-and-liabilities statement (or balance sheet), i.e. as if they had no structure in terms of resources and related property-rights, and debts. That is possibly one of the main reasons why an increasing number of scholars see much of firm theory as a ?obodyless discipline ?Ý. There are differences under many respects between standard treatments and Coase ?Ts but they are not desperately conflicting or diverging. Rather, it is possible to show that much of received firm economics can be reinterpreted and salvaged by ?oregionalizing ?Ý it, i.e. by showing that it is a special case plausible under the very restrictive set of assumptions most clearly spelled out long ago by LACon Walras. In most standard treatments they are all uncritically and - what is even worse - implicitly retained even when partial equilibrium analysis is at issue. I maintain that they should be abandoned to take full advantage of the AC approach, thrust and potentialities. Present paper is a starting step in that direction, first i) by giving operational definitions to such concepts as cost and ?otransaction ?Ý, and ii) by introducing a vision of the firm as a set of activities or functions very much in line with Coase ?Ts (and Stigler ?Ts); secondly, iii) by following Klamer and McCloskey ?Ts ideas as to the master metaphor of economics, and some of Shubik ?Ts suggestions, and thus making some explicit recourse to the time-honoured micro-accounting framework of assets and liabilities along with profit-and-loss statement. Most footnotes are devoted to more technical details on these matters. The case of a pure retailing firm offers an example embedded in a highly simplified balance sheet. It is possible to show: 1) how standard-cost minimizing analysis is useful when carefully used in solving observable problems such as the inventory problem, experienced also by most manufacturing firms, and 2) how a reinterpretation of it all is made possible thanks to the AC approach that reveals itself to be both rigorous, ?odown-to-earth ?Ý, and potentially allowing for inclusion of a host of facets of ordinary business life. By the way, one result is that asset specificity and opportunism are not necessary to determine the size and boundaries of a firm. Some further research lines are in the end summarized.