Changes

The theory of the firm starts with [Coase (1937) - The Nature Of The Firm |Coase (1937)] - who proposed '''transaction costs''' in a world of imperfect information as the answer. [Williamson (1979) - Transaction Cost Economics | Williamson ] (1975,1985, etc), refines this to center on the hold-up problem. The classic hold-up story is in Klein, Crawford, Alchian (1978) (car bodies), and was modelled by Grout (1984). It uses the notion of relational specific investments.

'''Property rights theory''', starting with [Grossman Hart (1986) - The Costs And Benefits Of Ownership |Grossman and Hart (1996) ] and refined by Hart and Moore (1990) was a distinct but somewhat similar branch.

Williamson's [Williamson (1979) - Transaction Cost Economics |TCE ] paradigm has three features:

"It seems to us that the theory of the firm, and especially work on what determines the boundaries of the firm, has become too narrowly focused on the holdup problem and the role of asset specificity.   Think of arraying the set of coordination and motivation problems that the firm solves along one dimension of a matrix, and the set of instruments it has available along the other. Put the provision of investment incentives in column one and ownership-defined boundaries in row one. Let an element of the matrix be positive if the corresponding instrument is used to solve the corresponding problem, and zero otherwise. So there is certainly a positive entry in row one, column one: ownership does affect incentives for investment. We have argued, however, that both the first column and the first row have many other positive elements; ownership boundaries serve many purposes and investment incentives are provided in many ways.

We have argued, however, that both the first column and the first row have many other positive elements; ownership boundaries serve many purposes and investment incentives are provided in many ways."