How does opportunistic behavior influence firm size? An evolutionary approach to organizational behavior

Christian Cordes, Peter Richerson, Richard McElreath and Pontus Strimling

Journal of Institutional Economics, 2011, vol. 7, issue 1, 1-21

Abstract: This paper relates firm size and opportunism by showing that, given certain behavioural 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.

Date: 2011
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