The Pragmatic Theory of the Firm
20 Pages Posted: 15 Dec 2020
Date Written: December 14, 2020
The pragmatic theory begins with the firm's purpose and treats the firm as a holistic system. The theory clarifies the purpose of the firm and treats all components as interrelated, rather than analyzing each component separately and in isolation, as has been customary. The theory then focuses on the firm's knowledge-building proficiency as the primary intangible asset for achieving the firm's purpose. The life-cycle, financial-performance framework is used to illustrate the unique practical benefits of the pragmatic theory, especially improved decision-making for management. The pragmatic theory should enable new and more fruitful research programs on the workings of the firm, while solidifying the firm as the fundamental unit of analysis for economic progress.
Keywords: pragmatic theory, knowledge building, life cycle, capitalism, value creation, firm risk
JEL Classification: D21, D22, D83, G12, G30, G32, G38, L2, M41, P17
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