The Living Thing / Notebooks :

Firms: What is WITH you?

Why do firms exist, not just single agents? Why do they exhibit a Zipf(ish) distribution? Why isn’t there (yet) a single monopoly owning the entire economy? Why are they structured like they are? How is that, anyway?

Since the only part of the indescribable state I care about is the part that affects my payoffs, we are essentially done: no matter how many v and c’s there could be in the future, as long as I can write a contract specifying how we each get other to truthfully say what those parameters are, this indescribability doesn’t matter.

Whoa. That is a very, very, very clever insight. Frankly, it is convincing enough that the only role left for property rights theories of the firm are some kind of behavioral theory which restricts even contracts of the Maskin-Tirole sense – and since these contracts are quite a bit simpler in some way than the hundreds of pages of legalese which we see in a lot of real-world contracts on important issues, it’s not clear that bounded rationality or similar theories will get us far.

Refs