Journal of Economic Perspectives: Vol. 12 No. 4 (Fall 1998)


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The Boundaries of the Firm Revisited

Article Citation

Holmstrom, Bengt, and John Roberts. 1998. "The Boundaries of the Firm Revisited." Journal of Economic Perspectives, 12(4): 73-94.

DOI: 10.1257/jep.12.4.73


Both transaction cost-economics and property-rights theories offer explanations of the boundaries of the firm based on ideas of ex post bargaining and holdup. These theories are quite distinct in their empirical predictions, but neither offers a satisfactory account of a large variety of observed practices. The authors discuss a number of such examples, where the boundaries of the firm seem to be determined by factors other than the need to protect investments, and where other mechanisms than the allocation of asset ownership are used to provide investment incentives. These examples indicate the need to enrich their theory of firm boundaries.

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Holmstrom, Bengt (MIT)
Roberts, John (Stanford U)

JEL Classifications

D20: Production and Organizations: General
L60: Industry Studies: Manufacturing: General


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