PHDBA602 (Theory of the Firm)

PHDBA602 is a (for credit) Directed Studies course, that doctoral students can use to develop their own courses with a professor. This page provides information about a directed study course with Steve Tadelis on that centers arounds models that provide theories of the firm.

Format

The format is:

• One, perhaps two, models per class
• One class per week, with a timeslot TBD.
• The student will write up the model ahead of time (on this wiki)
• The class will be used to:
  • Discuss intricacies of the model
  • Discuss modelling choices, with a view to helping the student understand how to build models
  • Place the model in the context of the broader literature

Papers

Introduction

The following papers were suggested as a starting point:

• Grossman, Sanford J. and Oliver D. Hart (1986), "The Costs and Benefits of Ownership: A Theory of Vertical Integration", Journal of Political Economy, vol.94, pp. 691-719. pdf
• Holmstrom, Bengt and Paul Milgrom (1991), "Multi-Task Principal-Agent Analyses: Linear Contracts, Asset Ownership and Job Design", Journal of Law, Economics and Organization, Vol. 7, pp. 24-52. pdf
• Gibbons, Robert (2005), "Four formal(izable) theories of the firm?", Journal of Economic Behavior & Organization, vol. 58, pp.200-245. pdf

The Handbook of Industrial Organization (1989) also provides a chapter on the theory of the firm:

• Holmstrom, Bengt R. and Jean Tirole (1989), "Chapter 2 The theory of the firm", In: Richard Schmalensee and Robert Willig, Editor(s), Handbook of Industrial Organization, Elsevier, Volume 1, Pages 61-133. pdf

Centralization/Decentralization:

• Bolton, Patrick and Joseph Farrell (1990), "Decentralization, Duplication And Delay," Journal of Political Economy, 98, pp. 803-26. pdf
• Alonso, Ricardo, Wouter Dessein and Niko Matouschek (2008), "When Does Coordination Require Centralization?" American Economic Review, Vol. 98(1), pp. 145-179. pdf

Relational Contracting:

• Baker, George, Robert Gibbons and Kevin J. Murphy (1999) "Informal authority in organizations", Journal of law, economics, & organization, volume 15, issue 1, page 56 pdf
• Baker, George, Robert Gibbons and Kevin J. Murphy (2002), "Relational Contracts and the Theory of the Firm", The Quarterly journal of economics, vol. 117, issue 1, page 39 pdf

Firm Boundaries:

• Holmstrom, Bengt and John Roberts (1999), "The Boundaries Of The Firm Revisited," Journal of Economic Perspectives, Vol. 12(4), Pages 73-94 pdf
• Holmstrom, Bengt (1999), "The Firm As A Subeconomy", Journal of Law, Economics, and Organization Vol. 15, Issue 1, pp. 74-102. pdf

Background Literature

The following papers provide seminal background material:

• Alchian, Armen A. and Harold Demsetz (1972), "Production, Information Costs, and Economic Organization", The American Economic Review, Vol. 62, No. 5. (Dec.), pp. 777-795 pdf
• Coase, Ronald (1937), "The Nature of the Firm", Economica. pdf
• Klein, Benjamin Robert, G. Crawford, and Armen A. Alchian (1978), "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process", Journal of Law and Economics, Vol. 21, No. 2. (Oct.), pp. 297-326 pdf
• Williamson, Oliver E. (1971), "The Vertical Integration of Production: Market Failure Considerations," American Economic Review, 61:112-23. pdf