Birger Wernerfelt
MIT Sloan



(Wednesday, 21st May 2014)

Title : Comparing Firms, Contracts and Markets

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A large literature (from Ronald Coase) compares alternative bilateral institutions such as firms and contracts, while another literature (from Adam Smith) compares bilateral institutions with markets. However, as is well known to the attendees, we have no commonly accepted theories in either domain.  I here explore the potential benefits from combining the two literatures. Specifically, the lecture starts by explaining the use of markets, contracts, and firms in the context of a single, yet very simple model. I then show that the theory makes predictions consistent with several stylized facts as well as the managerial literature on the scope of the firm.

Bibliographical references :

Wernerfelt: “Employment, Markets, Contracts, and the Scope of the Firm”, MIT Sloan, 2014.

Wernerfelt:  “Small Forces and Large Firms: Foundations of the RBV”, Strategic Management Journal, 2013.

Hart and Moore: “Property Rights and the Nature of the Firm”, Journal of Political Economy, 1990.