The Firm as a Subsociety
39 Pages Posted: 18 Feb 2021 Last revised: 31 Jan 2022
Date Written: November 30, 2021
Research in the “theory of the firm” tradition has often characterized firms as subeconomies in which economic exchange is shaped by a central authority. We propose an expanded view of firms as subsocieties in which authority is further responsible for establishing principles that shape socialization and cooperation among members. Applying insights from political, legal and organization theory, we discuss how individuals become members of these subsocieties by exchanging certain rights, such as formal control over their work, for the benefits of membership. With this rights exchange arise expectations similar to those held by members of society at large; namely, that those granted control will use it to define and sustain principles of justice and common purpose. This view suggests an expanded role for those who own and manage firms, as well as a different mechanism from standard theories of the firm for understanding firms and their boundaries.
Keywords: Theory of the Firm, Firm Boundaries, Corporate Purpose, Justice
JEL Classification: D2, D21, D23, L2, L22, L23, M12, M14
Suggested Citation: Suggested Citation