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 22: Revisiting Chandler on the Theory of the Firm

Steven Toms and John Wilson


Steven Toms and John F. Wilson 22.1 INTRODUCTION In three influential books, Strategy and Structure (1962), The Visible Hand (1977) and Scale and Scope (1990), Alfred Chandler (1918–2007) made a seminal contribution to the development of the theory of the firm in the second half of the twentieth century. Specifically, Chandler’s theory of the firm was developed from detailed empirical observation, rather than formal model building, providing a commentary on the rise of the large managerial corporation. Although Chandler’s contribution to the theory of the firm is therefore somewhat implicit, it is clear from subsequent work by a range of social scientists that he is regarded as one of the key twentieth-century influences on this and other dimensions of economic and management theory. A great deal of subsequent theory-building in organizational economics, transaction cost theory, new institutional economics and the resource-based view of the firm has accordingly acknowledged a debt to Chandler’s earlier empirical work. His theory of the firm is a theory of the large firm, or a theory of why large firms are successful. It is controversial, and implies a universally applicable model of business organization, as a consequence of which he has attracted considerable criticism. To describe these theories, accommodating this critique, and to suggest extensions, the chapter is structured as follows. We first describe the economic components of Chandler’s model. These components require extraction from Chandler’s work, in view of the strong empirical orientation of most of his writings. These are also characterized by interlinkages...

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