Monday, 6 June 2011

Is the theory of the firm big business?

In a recent survey of the Theories of the Firm-Market Boundary, Todd R. Zenger, Teppo Felin and Lyda Bigelow write
As one recent review explained, “the theory of the firm has become a big business” (Gibbons, 2005: 200)
And indeed Robert Gibbons did write,
After halting beginnings, the theory of the firm has become a big business. Coase (1937) posed the theory’s defining question: which transactions are more efficiently conducted in a firm than in a market? But then the field lay fallow for several decades. Since the 1970s, however, the theory of the firm has become one of the most fertile fields in the profession.
This seemed strange to me. From the viewpoint of New Zealand the theory of the firm looks more like a struggling intellectual corner dairy than a big business. The halting never seems to have ended in New Zealand. No matter how fertile the fields no one seems to be ploughing them in this part of down under.

But I figured this could just be me, what do I know?, so I wasted a whole pile of bandwidth and checked out the websites of New Zealand’s universities (most of which are awful by the way) to see how many of the economics departments have courses on the theory of the firm or on organisational economics. Answer, none. Or at least, none that I could find. Yes I’m sure that the theory of the firm get a mention in courses on industrial organisation or managerial economics or in more general microeconomics courses but its in passing or just as background needed to deal with whatever the course is really about. There appear to be no dedicated courses on the subject. Are firms really considered as unimportant to the economy as this would suggest?

So theory of the firm economists unite, you have nothing to lose but your obscurity! Assuming there is someone else to unite with.


Julian said...

Paul, you need to look at this Honours paper in the Department of Accounting and Finance, University of Auckland
FINANCE 702 Governance Issues in Finance (15 Points)

An introduction to the economic literatures relating to property rights, transaction cost economics, and agency theory. Application of these notions to the way in which organizations are structured. Identification of why some transactions are internalized and some are undertaken through markets. The application of these ideas to finance.


Now having taken this paper in the 90s and then having had some involvement with its subsequent teaching I can assure you that Coase's Theory of the Firm provides the structure for what is a great paper.

And where possible I also sneak Coase into my current lectures here at Auckland.


Paul Walker said...

Julian: I have to say I only looked at the econ departments not accounting or management. But the course does look good. Obviously its aimed at finance issues rather than theory of the firm issues as such but it is the most interesting course I've seen so far.