Handbook on the Economics and Theory of the Firm
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Handbook on the Economics and Theory of the Firm

Edited by Michael Dietrich and Jackie Krafft

This unique Handbook explores both the economics of the firm and the theory of the firm, two areas which are traditionally treated separately in the literature. On the one hand, the former refers to the structure, organization and boundaries of the firm, while the latter is devoted to the analysis of behaviours and strategies in particular market contexts. The novel concept underpinning this authoritative volume is that these two areas closely interact, and that a framework must be articulated in order to illustrate how linkages can be created.
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Chapter 9: Managerial Theories: Baumol and Marris

Olivier Weinstein


Olivier Weinstein 9.1 INTRODUCTION It was inevitable that the rise of the modern corporation and corporate capitalism, and the many reflections they have provoked, starting with the seminal work of Berle and Means, should raise fundamental questions for the economic analysis of the firm. Managerial theories constituted the first systematic attempt to rethink the theory of the firm in the light of the transformation of capitalism. The foundations were laid by Baumol, with his work on the theory of oligopoly and the question of the objectives pursued by the firm. Managerial theory was then extended beyond issues of market theory, to propose a theory of the firm per se, and more specifically an overall theory of the ‘managerial’ corporation, of which Robin Marris was the principal architect. This theory of the managerial corporation represented one of the first attempts by economists to look inside the ‘black box’ of the firm: it set out to reconsider the behaviour of the firm and its consequences by taking into account the specific characteristics of the large modern firm – the ‘corporation’. Thus, one of its primary objects of study is the rise to power of managers and the relationship between managers and shareholders, through the intermediary of the capital markets. It also focuses on the question of the growth of the firm, following the work of Edith Penrose (1959). 9.2 THE HYPOTHESIS OF INCOME MAXIMIZATION AND THE REWORKING OF OLIGOPOLY THEORY The first works of Baumol (1958, 1959) were a continuation of the great...

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