The Size of the Firm and Social Division of Labor

We develop a formal model with transaction costs and economies of labor specialization to address the firm size and the level of social division of labor. We show that the decline of firm size and the increase of the level of social division of labor may concur. We also demonstrate that an economically meaningful description of the production technology of the firm could be given by a sensible combination of individual-specific production functions. The (dis)integration of the industrial production process crucially depends on, among other things, the relative transaction efficiency of the labor market with that of the markets for intermediate products