The Firm In Search Of Its Nature

Abstract

This paper argues that the notions of ‘the nature of the firm’ prevailing in economics and management, in the course of having contributed to some distorsions in firm behavior via some biased assumptions, fall short of a core task: providing a clear specification of the traits distinguishing a firm from other organized entities. Paradoxically, the available theory of the firm does not say what precisely a firm is. Hence, in a first pars destruens, the paper identifies four main biases in the assumptions of available theories of the firm: pro central planning bias, association neglect, reification and teleologism. The second pars construens identifies four minimal necessary and sufficient elements for having a firm: continuous association and dedication of assets, legal personhood and erga omnes responsibility, constitutional contracting, and property right sharing. The third part draws implications for an expanded theory of economic organization and for improved firm governance practices.