Microeconomic Foundations III : Firms and Their Employees

Omtale

A cutting-edge introduction to the economic role of firms for first-year graduate students in economics and related fieldsWhy are firms—and not markets—where production takes place? In this concluding volume of Microeconomic Foundations, David Kreps puts the tools built in the first two volumes to work on one of economics’ most fundamental questions and shows why the standard answers, though powerful, are incomplete. Kreps begins by proving that general equilibrium theory can be formulated to dispense with firms altogether, so that their existence and their boundaries demand explanation. He then develops the leading explanations with characteristic clarity and candor: the classic papers on the nature of the firm; the financial theory of the firm; incomplete contracts and residual rights; the property rights theory of Grossman, Hart, and Moore; and Williamson’s transaction cost economics—asking throughout whether these theories shed light on real firms. His answer: each provides important insights, yet none tells the whole story. The final chapters bring ideas from social psychology and organizational sociology into the mix, arguing that because employment is a social as well as an economic relationship, each part affecting the other, we need to understand the behavior of employees to understand firm performance. While social exchange within a firm is also not the whole story, it provides an important perspective concerning the why, what, and how of firms. Requiring no mathematics beyond the earlier volumes, enlivened by cases from Toyota to Sun Hydraulics, and complete with problems whose solutions are freely available online, Microeconomic Foundations III concludes a trilogy that carries students from the classical foundations of microeconomics to its living frontier.