The effects of transaction costs and human capital on firm size: a simulation model approach

Frank A.G. den Butter, Edwin van Gameren and Jan M.P. de Kok
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Frank A.G. den Butter: Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics

No 10, Serie Research Memoranda from VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics

Abstract: Differences in optimal firm size may only be explained by heterogeneity amongst enterprises and the markets in which they operate. Therefore, the concept of the rep-resentative enterprise from the traditional theory of the firm is not helpful in explaining size differences. Differences in firm size may better be explained using recent developments in labour economics that stress the heterogeneity of workers and enterprises. In this paper, we exploit these new developments in labour economics by building a simulation model of the firm, which explicitly considers the link between internal and external labour markets and the resulting worker flows. Simulations with the model show how factors that account for differences in transaction costs and for heterogeneity of workers generate enterprises of different sizes.

Keywords: firm size; transaction costs; human capital; internal labour market; labour flows. (search for similar items in EconPapers)
JEL-codes: J24 L11 (search for similar items in EconPapers)
Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:vua:wpaper:2001-10

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