The old firm and the new organization

TL;DRAbstract

For many years the theory of economic organization was nearly synonymous with the theory of the firm. Standard economics textbooks occasionally referred to other forms of organization, such as the family and government, but the firm was the only organization consistently and systematically discussed. Nevertheless, the exact function of the firm remained unclear. Knight's (1921) attempt to add substance to the construct called the “firm” did not fare very well, and Coase's (1937) revolutionary approach to organization required several decades, as well as his own work on social cost, to begin to influence economists. Both of these efforts focused on the firm. In more recent years, Coase's transaction cost ideas have been exploited by economists attempting to generate a theory of the firm, as well as by others who question the usefulness of such a theory. The insights gained through these efforts have been considerable, yet our understanding of organization is only in its infancy. In this

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