Some Implications of Alternative Criteria for the Firm

Robert Solow

Chapter 10 in The Corporate Economy, 1971, pp 318-342 from Palgrave Macmillan

Abstract: Abstract To avoid elementary misunderstanding, I ought to begin by saying that there is unlikely ever to be a simple answer to the question: What does a firm maximize? In the first place, a firm, especially a large firm, may be unable to maximize anything. Different depart­ments, different committees, different individuals may have different and even conflicting objectives which they pursue with a degree of success depending on a complicated balance of forces and personali­ties. In the second place, even if the firm does have a coherent objective or set of objectives — a utility function — it may be content with approximate solutions and rules of thumb. And in the third place, if the firm does actually maximize something, the thing that it maximizes in any concrete case is likely to be a very complicated quantity, depending on the relative strengths of many interests and persons — owners, managers, the government, public opinion — and on the character of the markets in which it operates. To understand the behaviour of a single complicated firm would be a combined operation in economics, sociology and psychiatry, and in the end the conclusions might not generalize very far, or at all.

Keywords: Demand Curve; Capital Good; Capital Gain; Sales Revenue; Alternative Criterion (search for similar items in EconPapers)
Date: 1971
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DOI: 10.1007/978-1-349-01110-0_10

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