Sunday, June 30, 2013

Corporations And The Theory Of The Firm

I think the following are fairly typical aspects of a large corporation:

  • Operation of more than one plant.
  • Production of more than one product.
  • Use of large amounts of capital goods with fixed costs.
  • Production and sales in more than one country.
  • Provision of stock (also known as shares) that are traded on a specified stock exchange.

I suggest the indicated work of the following economists1 are useful to read2 in attempting to understand such organizations:

  • Joe Bain and Paolo Sylos Labini on Industrial Organization3.
  • John Maurice Clark, especially Studies in the Economics of Overhead Costs4.
  • John Kenneth Galbraith, especially his book The New Industrial State
  • Michal Kalecki on mark-up pricing.
  • Robin Marris' on managerial theories of the firm.
  • Gardiner Means and Adolf Berle, especially their book The Modern Corporation and Private Property5
  • Edith Penrose, especially her book The Theory of the Growth of the Firm.
  • Herbert Simon on the theory of administration.
  • Josef Steindl, who, as I understand it, was a follower of Michal Kalecki and did much work in Industrial Organization.

The theory of the firm, as taught to undergraduates, does not cover modern corporations and these economists. I do not claim that the theory cannot be expanded. Important issues include knowledge, organization, and competencies needed to expand into adjacent products and to expand the number of plants.

  1. Some of these authors or their works I only know of through secondary literature.
  2. Bruno Rizzi's 1939 book, La Bureaucratisation du Monde, occasioned an internal debate among followers of Trotsky and supposedly foretold some of the themes in some of the following works.
  3. Franco Modigliani's 1958 paper, "New Developments on the Oligopoly Front", reviews an important book by each member of this pair of authors.
  4. I do not want to claim Piero Sraffa showed how to correctly account for overhead costs; do corporations have sufficient data to set up his equations in their full generality? Do they not commonly adopt heuristics that sometimes, but not always, deviate from his equations?
  5. As I understand it, this book deals with, among other issues, the separation of ownership and control.

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