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 17: The European Firm

Alessandra Colombelli and Francesco Quatraro


Alessandra Colombelli and Francesco Quatraro 17.1 INTRODUCTION The organization of production has represented a key issue to economics scholars since Adam Smith’s Wealth of Nations (1776). The example of the pin factory or the one concerning the improvements in steam engines already called for the importance of division of labor, organization of production and the relationships between process and organizational innovations. Later on, Alfred Marshall’s Principles of Economics (1890) and Industry and Trade (1919) provided an analysis of the organization of production within different industrial contexts, comparing different national systems. However, business organization began to be included in a well-defined field of enquiry only in the late 1930s, that is, the theory of the firm. While the former approaches (Coase, 1937) were much interested in establishing a neoclassical basis to the theory of the firm, in the 1960s there was a change in the intellectual climate influencing the development of the discipline, leading to the introduction of the so-called managerial and behavioral theories, and then to the transaction costs approach proposed by Williamson. The shift away from the neoclassical approach to the theory of the firm was much influenced by the increasing awareness that the post-war international economy was farther and farther from a perfect competition situation. The use of markets ceased to appear as costless, and it was clear that in many countries, like France, Germany, and the United States, firms appeared more as large corporations carrying out many, if not all, of the stages of the production process,...

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