INTBUS 6 Lecture 12:
6 Oct 2020
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Tutorial 5, authors: michael c. jensen and william h. meckling (1976) The theory of the firm , the material generally subsumed under that heading is not a theory of the firm but actually a theory of markets in which firms are important actors. The firm is a black box operated so as to meet the relevant marginal conditions with respect to inputs and outputs, thereby maximizing profits, or more accurately, present value. Pioneering work of coase, and extended by alchian, demsctz and others. While the focus of this research has been property rights ,6 the subject matter encompassed is far broader than that term suggests. What is important for the problems addressed here is that specification of individual rights determines how costs and rewards will be allocated among the participants in any organization. We focus in this paper on the behavioural implications of the property rights specified in the contracts between the owners and managers of the firm.
