The Nature of the Firm (1937)

https://onlinelibrary.wiley.com/doi/full/10.1111/j.1468-0335.1937.tb00002.x

by ayanai • 8 years ago

71 12 8 years ago

onlinelibrary.wiley.com

peatmoss• 8 years ago

If people are interested in further reading on transaction cost economics, Oliver Williamson should be the next stop on your reading tour.

jamespitts• 8 years ago

A classic read! With smart contracts and other decentralized tech, the nature of the firm and it relationship with stakeholders is about to be utterly transformed.

https://en.wikipedia.org/wiki/Theory_of_the_firm

maxxxxx• 8 years ago

When you look around you may notice that there actually big trend towards centralization. Companies are getting bigger and bigger and the economy also concentrates around places like Silicon Valley and big cities.

igorkraw• 8 years ago

Which makes sense if you think about it: better technology in forecasting and decision making makes central planning more efficient

evrydayhustling• 8 years ago

I've always loved this book for opening my eyes to think about the motivations for human structures rather than just enumerating and studying the common structures around us.

Theory of the firm has many applications for technologists. In considering "disruptive" business models: why are transactions bundled together in an existing business model, and where would there be benefit in bundling them differently? In structuring dev teams: why does one mission lend itself to informal coordination within a team, while another can be trusted to collaborative processes across teams? And even in factorizing code: why does this set of concerns require informal coordination between functions (e.g. within a module or class), while this other set of concerns can be addressed at the app level through published interfaces?

ghaff• 8 years ago

So many things can be explained by transaction costs even if they're "just" mental. For example, Clay Shirky argued a long while back that mental transaction costs were a big reason why micropayments don't work and that still seems like a reasonable theory.

npudar• 8 years ago

I met Dr. Coase at a small meeting/conference that a consulting firm put together for its clients back in the mid-nineties. It was my first encounter to his thinking, and it was transformative for me. Today when I think about blockchain technology, I can't help but imagine how Coase would jump all over it and theorize about the further disintegration of large companies and how they will be organized. Reading about this tech with a Coasian mindset will also lead one to conclude that blockchain tech without an open digital token has limited value.

alexpetralia• 8 years ago

As someone who studied economics, "the nature of the firm" was something I could never bring myself to read because it just doesn't seem relevant or accessible.

I finally bit the bullet recently, read the actual paper, and wrote about a 1000 word summary here: https://alexpetralia.github.io/2018/03/05/NL-2018-03-05.html

I'll summarize briefly because I'm happy I did bite the bullet:

* We pay for a lot of things, and that "price mechanism" seems to be pretty good. If something's bad, we pay less; if it's good, we pay more. Everything relevant to a transaction seems to be "consolidated" into this thing called price

* Our whole economy runs on this price mechanism. Everyone pays for goods and services, and the economy works pretty well because of it ("the invisible hand")

* But for some reason, most of us work jobs. This means _someone tells you what to do_ inside the walls of the firm. There is no price mechanism here.

* That is bizarre. We coordinate all of production in the economy using "the price mechanism," but suddenly within a firm we don't coordinate production using it.

* Why don't we use the price mechanism inside a firm? Why does someone tell you what to do? Is it better or worse (ie. "more efficient") than the price mechanism? Why?

* This is what Coase tried to figure out, and he came up with a lot of really insightful conclusions

rayiner• 8 years ago

Coase’s paper on the FCC is also a must read. It is an amazing and surprisingly approachable introduction to the economics of regulation.

jonnydubowsky2• 8 years ago

A fascinating update to the economics of the firm examines how peer production, mainly open source software development changes the fundamentals of this discussion. https://www.yalelawjournal.org/article/coases-penguin-or-lin...

The quick summary from the same Yale Law Review post: “Peer production” is when many individuals use social signals to cooperate on large-scale projects without being paid or directed by managers, motivated by nonmonetary concerns.

The Internet has enabled the growth of many peer production projects. Open source software has been produced in this way.

Peer production is better than markets and firms when the product being produced is information, and when the capital needed for production, such as computers, is dispersed.

Peers are less likely to forget who the best person for a particular job is.

When many contributors access large amounts of information, potential gains are great.

Removing property and contract rights reduces transaction costs; individuals may simply use the resources they want and work as they will.

Peer production uses technological and social strategies to overcome problems usually solved by property and contract, like shirking:

Projects are broken into small parts.

Nonmonetary rewards like enjoyment let projects proceed that would otherwise cost too much.

Stronger intellectual property rights will not increase growth, if peer production is important to tapping human capital efficiently

jonnydubowsky2• 8 years ago

The paper is titled Coase’s Penguin, or, Linux and The Nature of the Firm

soVeryTired• 8 years ago

Here's some interesting pushback on Coase's work - in particular how it's been used to justify some sloppy business practices over the past few decades:

http://www.harrowell.org.uk/blog/2018/01/31/in-the-eternal-i...

The Nature of the Firm (1937)

Related Stories