Date Added: Jul 2010
This paper relates firm size and opportunism by showing that, given certain behavioural dispositions of humans, the size of a profit-maximizing firm can be determined by cognitive aspects underlying firm-internal cultural transmission processes. The authors argue that what firms do better than markets - besides economizing on transaction costs - is to establish a cooperative regime among its employees that keeps in check opportunism. A model depicts the outstanding role of the entrepreneur or business leader in firm-internal socialization processes and the evolution of corporate cultures. They show that high opportunism-related costs are a reason for keeping firms' size small.