Small Firms in Economic Theory

Jong-Il You

Cambridge Journal of Economics, 1995, vol. 19, issue 3, 441-62

Abstract: This paper is a survey of the theories of the determinants of firm size and the distribution of firm sizes, with a special emphasis on small firms. The diverse literature surveyed here is classified into four approaches. The first is the conventional microeconomic approach (or the technological approach) in which firm size is determined by technical and allocational efficiency. The second is the transaction cost approach (or the institutional approach) in which firm size is determined by transaction cost efficiency. The third is the industrial organization approach in which firm size and its distribution (market structure) are determined by market power. The fourth approach is that of the dynamic models of the size distribution of firms, including stochastic models, life-cycle models and evolutionary models. The concluding section summarizes the implications of various theories for the study of the small firm sector. (c) 1995 Academic Press, Inc. Copyright 1995 by Oxford University Press.

Date: 1995
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