Teams, Firms and the Evolution of Profit Seeking Behavior |
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Authors: | David C Rose |
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Institution: | (1) Department of Economics, University of Missour St. Louis, St. Louis, MO, 63121 4499, U.S.A. |
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Abstract: | Even as advances in information theory over the last quarter century have cast increasing doubt on the proposition that firms successfully maximize profits, the objective of profit maximization continues to be an axiomatic feature of the neoclassical theory of the firm. This paper attempts to improve our understanding firms by treating the objective function as an open question. Specifically, an ontogenetic thought experiment is undertaken to address the question of what differentiates production teams from firms by asking why team members would sell their control rights to a principal, thereby transforming the team into a firm. What results is an account of the emergence of the objective of profit seeking. Profit seeking emerges endogenously as a more fit alternative than the objective of value maximization, which is less capable of coping with uncertainty through purposive adaptation. |
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Keywords: | cooperation maximization firm governance incentive alignment firm objectives property rights residual claimancy residual control theory of the firm |
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