The Emergence of the Modern Theory of the Firm

Abstract

We discuss the emergence of the theory of the firm (in the Coasian sense); survey and discuss the main currents of the theory of the firm, and discuss what has determined the emergence of the theory of the firm. We argue that advances in the theory of the firm have been strongly influenced by conceptual innovations in (mainstream) economics in general and by the ongoing division of labour in economics in tandem with a recognition of the importance of a number of empirical anomalies. The substantive borrowing from neighbouring disciplines, such as business history, law, psychology, organizational sociology and business administration has been relatively limited and ad hoc (although some scholars, notably Williamson, have made more substantive use of these disciplines than others). The fact that the theory of the firm has stayed relatively close in to the (changing) economic mainstream and that its substantive borrowing from neighbouring disciplines has been relatively limited underlie and explain much of the "external" critique of the theory (i.e., the critiques of sociologists, heterodox economists and management scholars).

Keywords: The theory of the firm, economic organization

JEL Classification: B2, B40, D21, D23, L2