HETEROGENEOUS FIRMS AND THE ORGANIZATION OF PRODUCTION

HETEROGENEOUS FIRMS AND THE ORGANIZATION OF PRODUCTION Firms in the same industry exhibit systematic differences in the organization of production and the structure of employment. Entrepreneurial ability is the specific scarce input that limits the size of a firm. This input must be allocated to two activities, coordinating production and monitoring workers. Able entrepreneurs can convert calendar time into larger supplies of coordinating effort that enable them to assemble large firms. Greater ability implies a higher shadow price of time which increases the implicit costs of monitoring. A dispersion of entrepreneurial abilities generates an equilibrium size distribution of firms. Differences in monitoring costs affect the choice of worker productivities, the design of products, and the organization of production. The monitoring cost hypothesis advanced in this paper goes a long way in explaining the equilibrium of an industry containing heterogeneous firms that differ in size and behavior. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Economic Inquiry Wiley

HETEROGENEOUS FIRMS AND THE ORGANIZATION OF PRODUCTION

Economic Inquiry, Volume 21 (2) – Apr 1, 1983

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Publisher
Wiley
Copyright
Copyright © 1983 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0095-2583
eISSN
1465-7295
DOI
10.1111/j.1465-7295.1983.tb00623.x
Publisher site
See Article on Publisher Site

Abstract

Firms in the same industry exhibit systematic differences in the organization of production and the structure of employment. Entrepreneurial ability is the specific scarce input that limits the size of a firm. This input must be allocated to two activities, coordinating production and monitoring workers. Able entrepreneurs can convert calendar time into larger supplies of coordinating effort that enable them to assemble large firms. Greater ability implies a higher shadow price of time which increases the implicit costs of monitoring. A dispersion of entrepreneurial abilities generates an equilibrium size distribution of firms. Differences in monitoring costs affect the choice of worker productivities, the design of products, and the organization of production. The monitoring cost hypothesis advanced in this paper goes a long way in explaining the equilibrium of an industry containing heterogeneous firms that differ in size and behavior.

Journal

Economic InquiryWiley

Published: Apr 1, 1983

References

  • Information Costs, Pricing, and Resource Unemployment
    Alchian, Alchian
  • The Nature of the Firm
    Coase, Coase
  • Pay Differentials by Size of Establishment
    Lester, Lester

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