A great new paper is out in the Journal of Economic Surveys, Vol. 29, No. 2, 2015, pp. 317–338 on Contracts, entrepreneurs, market creation and judgement: the contemporary mainstream theory of the firm in perspective.
The paper surveys the contemporary mainstream theory of the firm. Contemporary meaning post-1970 while the mainstream "[...] consists of the ideas that are held by those individuals who are dominant in the leading academic institutions, organisations and journals at any given time, especially the leading graduate research institutions. Mainstream economics consists of the ideas that the elite in the profession finds acceptable, where by elite we mean the leading economists in the top graduate schools. It is not a term describing a historically determined school, but is instead a term describing the beliefs that are seen by the top schools and institutions in the profession as intellectually sound and worth working on".
As far as the theory is concerned, two general groupings of theories are briefly discussed: principal–agent models and incomplete contract models. Each of these general groups can be subdivided to give an elementary organisational structure for the contemporary theory of the firm. The principal agent groups contains three sub-groups: 1) the nexus of contracts view, 2) the firm as a solution to moral hazard in teams approach and 3) the firms as an incentive system view, while the incomplete contracts group contains five subgroups: 1) the authority view, 2) the firm as a governance mechanism, 3) the firm as an ownership unit, 4) implicit contracts and 5) the firm as a communication-hierarchy. Then, three of the most recent contributions regarding firms are considered. The reference point approach is looked at first followed by a discussion of Spulber's book The Theory of the Firm. Last, the "entrepreneurial judgement" perspective of Foss and Klein is considered.
A wonderful little paper. Not that I'm biased or anything.
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