Authority in the Firm (And the Attempt to Theorize It Away)

Abstract

The classical case or market society appeals to the complementary goods of economic liberty and maximum wealth. A market society overgrown with economic firms, however, partly sacrifices liberty for the sake of wealth. This point was accepted by prewar theorists of the economic firm, such as Frank Knight and Ronald Coase, and the attempt to moderate, or compensate for, the constriction of economic liberty was a central struggle of the Progressive Era. Since World War II, however, neoclassical economists have tried to assimilate the firm to the theory of market exchange. Because they have failed, issues of authority and control have recently reassumed their place at the center of the theory of the firm.

Keywords: Firm, Neoclassical firm, Smith, Knight, Coase, Alchian and Demsetz, Hart, Zingales