How Does Opportunistic Behavior Influence Firm Size?

Christian Cordes, Peter J. Richerson, Richard McElreath and Pontus Strimling

Papers on Economics and Evolution from Max Planck Institute of Economics, Evolutionary Economics Group

Abstract: This paper relates firm size and opportunism by showing that, given certain behavioral dispositions of humans, the size of a profit-maximizing firm can be determined by cognitive aspects underlying firm-internal cultural transmission processes. We argue that what firms do better than markets – besides economizing on transaction costs – is to establish a cooperative regime among its employees that keeps in check opportunism. A model depicts the outstanding role of the entrepreneur or business leader in firm-internal socialization processes and the evolution of corporate cultures. We show that high opportunism-related costs are a reason for keeping firms’ size small.

Keywords: Theory of the Firm; Transaction Cost Economics; Cultural Evolution; Opportunism; Cooperation Length 21 pages (search for similar items in EconPapers)
JEL-codes: D21 D23 D01 M14 C61 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cbe, nep-ent and nep-soc
Date: 2006-11
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Persistent link: http://EconPapers.repec.org/RePEc:esi:evopap:2006-18

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