The Economic Firm as a Manifestation of Strategic Entrepreneurship

Abstract

We study the economic rationale for integrating production fully separated from the “legal fiction” of the firm. In order to do this, we develop a “thick” model of the market as an economic organism, a more realistic pure market regime than general equilibrium models, which consists of real people in a social setting rather than simple profit maximizers, using the economic theory of anarchism. We find that firms will form in order to implement productivity-improving innovation that require integration, and our analysis suggests that optionality may be an important determinant of market structure. Specifically, we find that the economic function of the firm is the manifestation of strategic entrepreneurship, which has implications also for how we view the market, the firm, and management.

Keywords: anarchism; organization; firm boundaries; theory of the firm; strategic entrepreneurship

JEL Classification: L26, M13, L11