DOCSLIB.ORG

Models in a Behavioral Theory of the Firm

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Models in a Behavioral Theory of the Firm GRADUATE SCHOOL OF INDUSTRIAL ADMINISTRATION Reprint No. 3 I Models in a Behavioral Theory of the Firm by R. M. Cyert, E. A. Feigenbaum, and J. G. March 1959 CARN E G I E INSTITUTE OF TECHNOLOGY Pittsburgh 13, Pennsylvania Keprinted Behavioral f:nck Vol. 4, No. April, 1!I5!I I'rinltd in 1 How do business organizations make decisions? What process do they follow in deciding how much to produce? And at what price? A behavioral theory of the firm is here explored.Using a specific type of duopoly, a model is written explicity as a computer program to deal with the complex theory implicit in the process by which businesses make decisions. This model highlights our need for more empirical observations of organizational de- cision-making. MODELS IN A BEHAVIORAL THEORY OF THE FIRM hi/ It. M . Cijert, K. A. Feigenbaum, and .1. G. March Carnegie Institute of Technology attempts to develop a behavioral side of this point are not available. In our Rkck.nttheory of the firm have focused par- judgment, a major portion of the effort in ticularly on the internal characteristics of a the next decade of research on pricing should business firm as a decision-making organiza- he directed to answering this question (or tion. They have used the rough framework to making it irrelevant). But we do not pro- of both the theory of competitive pricing pose to discuss the point in detail here. and the modern efforts to extend that Second, a way must he found to deal with theory to situations of imperfect competition the complex theory implicit, in the decision- such as the case of oligopoly and duopoly making process approach. A major problem where onlya few, or possibly only two, firms perceived by those sympathetic to a be- supply a given market. They have, however, havioral theory has been the lack of a gone further in introducing as an important methodology suitable for handling the kinds part of the theory the process by which of complexities that seemed to be needed business organizations make decisions. Since (Koopmans, 1957). It is to this problem and business (inns are organizations, it has to the development of a specific model to seemed reasonable a priori to assume that a which we address ourselves in this paper. theory of business behavior ought not to We show that a relativelycomplex model treat them as individual decision-makers. of the firm as a decision-makingorganization (Alt, 1949; Bushaw & ('lower, 1957; can be developed and used to yield econom- Chamberlin, 194(1; Cooper, 1951; Cyerf & ically relevant and testable predictions of March, 1955; Cyert &. March, 195(i; business behavior. The methodology in- Cordon, 1948; Papandreou, 1952; Wein- volved is computer simulation. The model is traub, 1942). one of a specific type of duopoly. As a rough Two major obstacles to the acceptance of test of reasonableness, we compare the pre- such a theory of pricing are obvious. First, dictions of the model with actual data. Our it must be shown that the theory is at least, hope is that the model will illustrate the as good as other existing theories in its promise of simulation as a technique of ability to predict firm behavior (Friedman, model building in economic theory and the 195U). Convincing demonstrations on either behavioral sciences in general and at the same time demonstrate a general method * This paper is based on research supported by grunts made by the (Jraduate School of Industrial for examining many of the concepts previ- Administration, Carnegie Instituteof Technology, ously discussed in more abstract terms. from the School's research funds and from funds provided by the Ford Foundation for Ihe study of THE DECISION-MAKING PROCESS organizational behavior. The authors owe a con- Recent theories of organizational behavior siderable debt to a large group of colleagues and students for their comments on the general ap- have emphasized several important charac- proach and specific models presented here. teristics of the decision-making process that from Sri 2, C.S.A. SI Theory 82 FEKiEMiAUM AM) M.\lfCH Models in a Behavioral oe the Firm 83 are dealt with awkwardly in the theory of fact that firms assume something about the assume that a firm performs such computa- methods for influencing demand (e.g., an the firm. First, organizational decisions de- reactions of theirrivals is, of course, incorpo- tions more or less simultaneously and that additional advertisingeffort). In either ease, pend on information, estimates, and expec- rated in any theory of oligopoly. Our ap- all are substantially completed before any we expect organizations to revise demand tations that ordinarily differ appreciably proach is to build into the model some further action is taken. Since the subsequent estimates under some conditions and differ- from reality. These organizational percep- propositions about the ways in which organi- steps are all contingent, the order in which ent organizations to revise them in different tions are influenced by some characteristics zations gain, analyze, and communicate in- they are performed may have considerable ways. Evaluation (5) occurs again with the of the organization and its procedures. The formation on competitors. The concept of effect on the decisions reached. This is par- revised estimates. procedures provide; concrete estimates --if organizational learning, a process by which ticularly true with respect to the order of (8) Re-examine objectives. Where plans not necessarily accurate ones (Cyert & expectations of competitors' behavior are steps (0), (7), and (8). Thus, one of the are unfavorable, we expect a tendency to March, 1955). Second, organizations con- modified on the basis of experience, is u structural characteristics of a specific model revise objectives downward. The rate and sider only a limited number of decision major element in this formulation. is the order of the steps. extent of change we can attempt to predict. alternatives. The set of alternatives con- (2) Forecast demand. We have attempted (5) Evaluate plan. On the basis of the As before, evaluation (5) is made with the sidered depends on some feature's of organi- to build a model that can encompass de- estimates of (1), (2), and (M) alternatives revised objectives. zational structure and on the locus of search scriptions of the process by which the de- are examined to see whether there is at least (9) Select alternative. The organization responsibility in the organization. This mand curve (the relationship between the one alternative that satisfies the objectives requires a mechanism (a) for generating dependence seems to be particularly con- price of the product and the quantity which defined by (4). If there is, we transfer im- alternatives to consider and (b) for choosing spicuous in such planning processes as can be sold at that price) is estimated in the mediately to (9) and a decision. If there is among those generated. The method by budgeting and price-output determination firm. In this manner, we are able to intro- not, however, we go on to step (6). This which alternatives are generated is of con- (Alt, 1949). Finally, organizationsvary with duce organizationalbiases in estimation and evaluation represents a key step in the siderable importance since it affects the respect to the amount of resources they allow for differences among firms in the way planning process that is ignored in a model order in which they areevaluated. Typically, devote to organizational goals on the one in which they adjust their current estimates that uses objectives solely as the decision the procedures involved place a high pre- hand and suborganizational and individual on the basis of experience. rule. Certain organizational phenomena mium on alternatives that are "similar" to goalson the other. In particular, conflict and (M) Estimate costs. We do not assume, as (e.g., organizational slack) increase in im- alternatives chosen in the recent past by the partial conflict of interests is a feature of in the theory of the firm of economics, that portance because of the contingent conse- firm or by other firms of which it. is aware. most organizations and under some condi- the firm has achieved the optimum combina- quences of this step. If alternatives are generated strictly se- tions organizations develop substantial in- tion of resources and the lowest cost per ((>) Re-examine costs. We specify that quentially, the choice phase is quite simple: ternal slack susceptible to reduction under unit of output for any given size plant. We the failure to find a viable plan initially choose the first alternative that falls in the external pressure (Cyert & March, 19.%). believe it is necessaryto introduce thefactors results in the re-examination of estimates. estimate space, that is the set of positions The concept of organizational or internal that actually affect the firm's costs, esti- Although we list the re-examination of costs determined by the estimated demand and slack is used to describe a situation within an mated as well as achieved. first here, the order is dependent on some estimated cost curves. If more than one al- organization in which individual energies (4) Specify objectives. As has been noted features of the organization and will vary ternative; is generated at a time, a more potentially utilizable for the achievement of above, organizational "objectives" may from firm to firm. 1 An important feature of complicated choice process is required. For organizational goals are permitted to be di- (Miter at two distinct points and perform organizations is the extent to which a firm example, at this point maximization rules verted. The form of the slack may vary two quite distinct, functions. First, in this is able to "discover" under the pressure of may be applied to select from among the from a labor force not working at its full step they consist, in goals the organization unsatisfactory preliminary plans "cost sav- evoked alternatives.
Load more

Recommended publications
  • The Theory of the Firm and the Theory of the International Economic Organization: Toward Comparative Institutional Analysis Joel P
    Northwestern Journal of International Law & Business Volume 17 Issue 1 Winter Winter 1997 The Theory of the Firm and the Theory of the International Economic Organization: Toward Comparative Institutional Analysis Joel P. Trachtman Follow this and additional works at: http://scholarlycommons.law.northwestern.edu/njilb Part of the International Trade Commons Recommended Citation Joel P. Trachtman, The Theory of the Firm and the Theory of the International Economic Organization: Toward Comparative Institutional Analysis, 17 Nw. J. Int'l L. & Bus. 470 (1996-1997) This Symposium is brought to you for free and open access by Northwestern University School of Law Scholarly Commons. It has been accepted for inclusion in Northwestern Journal of International Law & Business by an authorized administrator of Northwestern University School of Law Scholarly Commons. The Theory of the Firm and the Theory of the International Economic Organization: Toward Comparative Institutional Analysis Joel P. Trachtman* Without a theory they had nothing to pass on except a mass of descriptive material waiting for a theory, or a fire. 1 While the kind of close comparative institutional analysis which Coase called for in The Nature of the Firm was once completely outside the universe of mainstream econo- mists, and remains still a foreign, if potentially productive enterrise for many, close com- parative analysis of institutions is home turf for law professors. Hierarchical arrangements are being examined by economic theorists studying the or- ganization of firms, but for less cosmic purposes than would be served3 by political and economic organization of the production of international public goods. I. INTRODUCrION: THE PROBLEM Debates regarding the competences and governance of interna- tional economic organizations such as the World Trade Organization * Associate Professor of International Law, The Fletcher School of Law and Diplomacy, Tufts University.
    [Show full text]
  • Portfolio Diversification, Market Power, and the Theory of the Firm
    Working Paper WP-1170-E March, 2017 PORTFOLIO DIVERSIFICATION, MARKET POWER, AND THE THEORY OF THE FIRM José Azar IESE Business School – University of Navarra Av. Pearson, 21 – 08034 Barcelona, Spain. Phone: (+34) 93 253 42 00 Fax: (+34) 93 253 43 43 Camino del Cerro del Águila, 3 (Ctra. de Castilla, km 5,180) – 28023 Madrid, Spain. Phone: (+34) 91 357 08 09 Fax: (+34) 91 357 29 13 Copyright © 2017 IESE Business School. IESE Business School-University of Navarra - 1 The Public-Private Sector Research Center is a Research Center based at IESE Business School. Its mission is to develop research that analyzes the relationships between the private and public sectors primarily in the following areas: regulation and competition, innovation, regional economy and industrial politics and health economics. Research results are disseminated through publications, conferences and colloquia. These activities are aimed to foster cooperation between the private sector and public administrations, as well as the exchange of ideas and initiatives. The sponsors of the Public-Private Sector Research Center are the following: Ajuntament de Barcelona Departament d’ Economia i Coneixement de la Generalitat de Catalunya Departament d’ Empresa i Ocupació de la Generalitat de Catalunya Diputació de Barcelona EVERIS Fundació AGBAR Institut Català de les Empreses Culturals (ICEC) PricewaterhouseCoopers Sanofi The contents of this publication reflect the conclusions and findings of the individual authors and not the opinions of the Center's sponsors. IESE Business School-University of Navarra Portfolio Diversification, Market Power, and the Theory of the Firm José Azar∗ January 30, 2017 Abstract This paper develops a model of firm behavior in the context of oligopoly and port- folio diversification by shareholders.
    [Show full text]
  • Encyclopedia of Law & Economics
    5610 THE THEORY OF THE FIRM Nicolai J. Foss Department of Industrial Economics and Strategy Copenhagen Business School Henrik Lando Department of Finance Copenhagen Business School Steen Thomsen Institute of International Business Aarhus Business School © Copyright 1999 Nicolai J. Foss, Henrik Lando, and Steen Thomsen Abstract This chapter is a survey of modern theories of the firm. We categorize these as belonging either to the principal-agent or the incomplete contracting approach. In the former category fall, for example, the Alchian and Demsetz moral hazard in teams theory as well as Holmstrøm and Milgrom’s theory of the firm as an incentive system. Belonging to the incomplete contracting branch are theories that stress the importance of the employment relationship (for example, Coase and Simon) as an adaptation mechanism, theories that stress the importance of ownership of assets for affecting incentives when contracts must be renegotiated (Williamson, Grossman and Hart, Hart and Moore), and some recent work on implicit contracts (Baker, Gibbons and Murphy). We argue that these different perspectives on the firm should be viewed as complementary rather than as mutually exclusive and that a synthesis seems to be emerging. JEL classification: K22, L22 Keywords: Principal-Agent Problems, Incomplete Contracts, Moral Hazard, Employment Relationship, Firm Ownership, Renegotiation 1. Introduction: The Emergence of the Theory of the Firm Along with households, firms have for a long time been a crucial part of the explanatory set-up of economics. For example, in basic price theory, firms are part of the apparatus that helps us trace out the effect on endogenous variables of changes in exogenous variables.
    [Show full text]
  • The Theory of the Firm, the Theory of Competition and the Transnational Corporation Janis Kapler University of Massachusetts Boston, [email protected]
    University of Massachusetts Boston ScholarWorks at UMass Boston Economics Faculty Publication Series Economics 1-1-2006 The Theory of the Firm, the Theory of Competition and the Transnational Corporation Janis Kapler University of Massachusetts Boston, [email protected] Follow this and additional works at: http://scholarworks.umb.edu/econ_faculty_pubs Part of the Labor Economics Commons Recommended Citation Kapler, Janis, "The Theory of the Firm, the Theory of Competition and the Transnational Corporation" (2006). Economics Faculty Publication Series. Paper 7. http://scholarworks.umb.edu/econ_faculty_pubs/7 This Occasional Paper is brought to you for free and open access by the Economics at ScholarWorks at UMass Boston. It has been accepted for inclusion in Economics Faculty Publication Series by an authorized administrator of ScholarWorks at UMass Boston. For more information, please contact [email protected]. 1 THE THEORY OF THE FIRM, THE THEORY OF COMPETITION, AND THE TRANSNATIONAL CORPORATION Working paper, 9/06 J. K. Kapler, Associate Professor University of Massachusetts at Boston Department of Economics 100 Morrissey Boulevard Boston, MA 02125-3393 (phone) 617-287-6955 (fax) 617-287-6976 [email protected] 2 ABSTRACT The Theory of the Firm, The Theory of Competition, and The Transnational Corporation (TNC) JEL F23 Coase’s 1937 paper on “The Nature of the Firm” formed the basis of the transaction-cost and internalization theories of transnational enterprises in the 1970s-1990s. These emphasized the problem of firms transferring intangible assets across national borders. Newer theories of the firm adopt resource- based Penrosian, knowledge-based, capabilities and evolutionary perspectives, yet most continue to explain the international firm as a function of transaction-cost economizing.
    [Show full text]
  • Towards a Political Theory of the Firm
    NBER WORKING PAPER SERIES TOWARDS A POLITICAL THEORY OF THE FIRM Luigi Zingales Working Paper 23593 http://www.nber.org/papers/w23593 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 July 2017 I thank Mark Gertler, Gordon Hanson, Enrico Moretti, Tim Taylor for very useful comments and Steve Haber for educating me on the multiple ways in which Google lobbies. Financial support from the Stigler Center and from the George Rinder Research fund at the University of Chicago is gratefully acknowledged. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2017 by Luigi Zingales. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Towards a Political Theory of the Firm Luigi Zingales NBER Working Paper No. 23593 July 2017 JEL No. G3 ABSTRACT Neoclassical theory assumes that firms have no power of fiat any different from ordinary market contracting, thus a fortiori no power to influence the rules of the game. In the real world, firms have such power. I argue that the more firms have market power, the more they have both the ability and the need to gain political power. Thus, market concentration can easily lead to a “Medici vicious circle,” where money is used to get political power and political power is used to make money.
    [Show full text]
  • Fallacies in the Interpretation of the Externality Problem
    FALLACIES IN THE ECONOMIC DOCTRINE OF EXTERNALITIES Harold Demsetz, Professor Emeritus, UCLA (This draft: 7/19/2010; First draft: 9/29/2009) This essay refutes contemporary doctrine toward externalities and offers a different view, one that is much narrower in application, of what we now call the externality problem. Discussion of externalities has continued for almost 100 years. I do not trace the details of this long history but, instead, focus on the two major turning points that shape current doctrine. These are The Economics of Welfare (1920) by A. C. Pigou and ‘The Problem of Social Cost’ (1960) by R. H. Coase. Contemporary doctrine seems to have settled into a state of quiet toleration of the different views offered by these two works, at least as compared to the heated debates during the years that followed immediately on the appearance of Coase’s paper. The present essay is intended to disrupt this quietude, for I am convinced that Pigou, Coase, and, more generally, the economics profession view this problem wrongly. The present essay contains three parts, a prefatory note intended to clear away potential confusions, a refutation of Pigou’s and Coase’s views, and a suggested alternative to these.1 I. Prefatory note. The 18th century debate between mercantilists and Scottish philosophers came to an important juncture in 1776 with publication of Adam Smith’s inquiry into The Wealth of Nations. Smith’s contributions to the emerging new discipline of economics were multifaceted and far reaching, but the contribution most relevant to this debate was his argued claim that a competitive, private ownership economy in which persons acted freely to improve their own interests could, and would, serve public interests.
    [Show full text]
  • An Economist's Perspective on the Theory of the Firm Author(S): Oliver Hart Source: Columbia Law Review, Vol
    An Economist's Perspective on the Theory of the Firm Author(s): Oliver Hart Source: Columbia Law Review, Vol. 89, No. 7, Contractual Freedom in Corporate Law (Nov., 1989), pp. 1757-1774 Published by: Columbia Law Review Association, Inc. Stable URL: http://www.jstor.org/stable/1122818 Accessed: 24/08/2008 12:44 Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at http://www.jstor.org/action/showPublisher?publisherCode=clra. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. JSTOR is a not-for-profit organization founded in 1995 to build trusted digital archives for scholarship. We work with the scholarly community to preserve their work and the materials they rely upon, and to build a common research platform that promotes the discovery and use of these resources. For more information about JSTOR, please contact [email protected]. http://www.jstor.org AN ECONOMIST'S PERSPECTIVE ON THE THEORY OF THE FIRM OliverHart* An outsider to the field of economics would probably take it for granted that economists have a highly developed theory of the firm.
    [Show full text]
  • New Institutional Economics
    View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by University of Missouri: MOspace 0530 NEW INSTITUTIONAL ECONOMICS Peter G. Klein Department of Economics, University of Georgia © Copyright 1999 Peter G. Klein Abstract This chapter surveys the new institutional economics, a rapidly growing literature combining economics, law, organization theory, political science, sociology and anthropology to understand social, political and commercial institutions. This literature tries to explain what institutions are, how they arise, what purposes they serve, how they change and how they may be reformed. Following convention, I distinguish between the institutional environment (the background constraints, or ‘rules of the game’, that guide individuals’ behavior) and institutional arrangements (specific guidelines designed by trading partners to facilitate particular exchanges). In both cases, the discussion here focuses on applications, evidence and policy implications. JEL classification: D23, D72, L22, L42, O17 Keywords: Institutions, Firms, Transaction Costs, Specific Assets, Governance Structures 1. Introduction The new institutional economics (NIE) is an interdisciplinary enterprise combining economics, law, organization theory, political science, sociology and anthropology to understand the institutions of social, political and commercial life. It borrows liberally from various social-science disciplines, but its primary language is economics. Its goal is to explain what institutions are, how they arise,
    [Show full text]
  • Managerial Behavior, Agency Costs, and Ownership Structure
    Journal of Financial Economics 3 (1976) 305-360. Q North-Holland Publishing Company THEORY OF THE FIRM: MANAGERIAL BEHAVIOR, AGENCY COSTS AND OWNERSHIP STRUCTURE Michael C. JENSEN and William H. MECKLING* University of Rochester, Rochester, NY 14627, U.S.A. Received January 1976, revised version received July 1976 This paper integrates elements from the theory of agency. the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demon- strate who bears these costs and why, and investigate the Pareto optirnality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors in- fluencing tht- creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem. The directors of such [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frcqucntly watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give thcmsclvcs a dispensation from having it. Negligence and profusion, there- fore, must always prevail, more or Icss, in the management of the affairs of such a company.
    [Show full text]
  • Ownership in the Electricity Market: Property, the Firm, and the Climate Crisis
    A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Ferguson-Cradler, Gregory Working Paper Ownership in the electricity market: Property, the firm, and the climate crisis MPIfG Discussion Paper, No. 20/5 Provided in Cooperation with: Max Planck Institute for the Study of Societies (MPIfG), Cologne Suggested Citation: Ferguson-Cradler, Gregory (2020) : Ownership in the electricity market: Property, the firm, and the climate crisis, MPIfG Discussion Paper, No. 20/5, Max Planck Institute for the Study of Societies, Cologne, http://hdl.handle.net/21.11116/0000-0006-54AF-7 This Version is available at: http://hdl.handle.net/10419/218727 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten
    [Show full text]
  • Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure
    Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure Michael C. Jensen Harvard Business School [email protected] And William H. Meckling University of Rochester Abstract This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem. The directors of such [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company. — Adam Smith (1776) Keywords: Agency costs and theory, internal control systems, conflicts of interest, capital structure, internal equity, outside equity, demand for security analysis, completeness of markets, supply of claims, limited liability ©1976 Jensen and Meckling Journal of Financial Economics, October, 1976, V.
    [Show full text]
  • Debunking the Theory of the Firm—A Chronology Steve Keen and Russell Standish [Universities of Western Sydney and New South Wales, Australia]
    real-world economics review, issue no. 53 Debunking the theory of the firm—a chronology Steve Keen and Russell Standish [Universities of Western Sydney and New South Wales, Australia] Copyright: Steve Keen and Russell Standish, 2010 A personal introduction by Steve Keen I have been an economics renegade for almost 40 years, and for most of that time I have had to tolerate neoclassical economists either dismissing my work or ignoring it. Since the Global Financial Collapse began, that has ceased to be the case. Neoclassical economists, although hardly likely to become born-again Post Keynesians, are chastened and to some degree humbled by their inability to anticipate this crisis. Moreover, it's hard for them to hide behind the "Black Swans" defence when the speaker is someone credited with having predicted the crisis before it happened. So that's all and good; one might even think that the seeds have been laid to finally achieve a true reform of economics, to make it empirical rather than a priori. However, one also notices a worrying trend among neoclassicals today. True, after having had their macroeconomics lambasted and having been shown how Minsky's analysis makes sense of what they can't understand, they are often willing to admit that neoclassical macroeconomics is a shambles. No-one, they will say, defends rational expectations anymore. But then they assert: at least neoclassical microeconomics is sound. This is patently absurd – especially since neoclassical macro was built largely by subverting its "Keynesian" predecessor on the grounds that it "did not have good microfoundations", and then casting macroeconomics as applied neoclassical microeconomics.
    [Show full text]