Firms as Clubs in Walrasian Markets with Private Information
FRB Richmond Working Paper No. 00-8
60 Pages Posted: 27 Nov 2012
Date Written: September 8, 2000
Using private information and club theories, this paper develops a theory of firms in general equilibrium. Firms are defined to be assignments of technologies and agents to clubs. In equilibrium, firms form endogenously and multiple types may co-exist. We formulate the general equilibrium problem as both a Pareto program and as a competitive equilibrium. Welfare and existence theorems are provided. In the competitive equilibrium, club memberships are priced and purchased, so the market determines which organizations exist as well as who is a member. Pareto optima and competitive equilibria of several examples are computed. In our examples, elements of limited commitment and monitoring capabilities are important factors that affect both the internal organization of firms and their equilibrium distribution. Furthermore, equilibrium organizational structure varies with the aggregate endowment of capital and the distribution of wealth.
Keywords: private information, general equilibrium, clubs, theory of the firm
JEL Classification: D51, D71, D82, L20
Suggested Citation: Suggested Citation