Theories of the firm: contractual and competence perspectives

The article compares alternative approaches to the theory of the firm. The two main approaches confronted are the contractual (Coasian) perspective and the competence (evolutionary) perspective. Whereas the firm as a repository of tacit knowledge is neglected in the contractual perspectives, it occupies center stage in the competence perspective. It is argued that the competence perspective is not only applicable an understanding of the sources of firms' competitive advantage, but may also be applied to the issues of the existence and the boundaries of the firm. This means that a distinct theory of the firm can be constructed on the basis of evolutionary theory.