We contrast transactions in markets with those in firms and characterize the optimal numbers in each. Governance structures appear as equilibria and are compared in terms of production costs -- determined by a tradeoff between specialization and adaptation, -- and bargaining costs. Under natural...

We propose a theory of the scope of the firm, and offer supporting evidence. The theory suggests that multi-business firms exist because they allow better deployment of factors that, because of sub-additive transactions costs, cannot be traded in fractions or rented for short periods. It...

This paper deals with bounded rationality as a way to describe behavior and focuses on the question of how to build such boundedly rational models. The first part is a discussion of the reasons why such models are needed and on the situations in which they can be regarded as more particularly...

We look at the economic functions of firms, contracts, and markets and characterize the optimal scope of the firm. Governance structures appear as equilibria and are compared in terms of production costs - determined by a tradeoff between standardization and adaptation - and adjustment costs -...

In the context of an employment relationship, I present an argument suggesting that it is more efficient for the boss to own productive assets. The idea is that a conflict between productivity and depreciation is internalized if the player deciding what an asset is used for also has residual...

The Resource-Based View of the firm (RBV) posits as a necessary condition for diversification that a firm's resources can be leveraged beyond its original business. To achieve sufficiency we need to know whether the resource is best leveraged inside the firm or through a market contract. We...

We use a dataset describing ownership of productive assets in the carpentry trade to evaluate several factors influencing the allocation of asset ownership among employers and employees. The findings suggest that the allocation involves a tradeoff between two incentive effects influencing how...

In the context of an employment relationship, I present an argument suggesting that it is more efficient for the boss to own the productive assets. The idea is that a conflict between productivity and depreciation is internalized if the player deciding what an asset is used for also has residual...