The Comparative Advantages of Firms, Markets and Contracts: a Unified Theory
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Wernerfelt_The comparative.pdf
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406.02 KB
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Author(s)
Wernerfelt, Birger
Date Issued
October 2014
Journal
Economica
Publisher
Wiley Blackwell
Citation
Wernerfelt, Birger. “The Comparative Advantages of Firms, Markets and Contracts: a Unified Theory.” Economica 82, no. 326 (October 16, 2014): 350–367.
Version
Original manuscript
Abstract
The most efficient labour market mechanism depends on the advantages of specialization, workers’ costs of switching between entrepreneurs, and the frequency with which needs change. Multilateral mechanisms are more efficient when specialization is more advantageous, when it is cheap for workers to switch between entrepreneurs, and when individual entrepreneurs cannot occupy a worker on a full-time basis. Given a bilateral mechanism, employment (a firm) is more efficient than contracts when in-process adjustments arise more frequently. There exist three regions in which firms, markets and sequences of bilateral contracts are weakly more efficient than all other mechanisms in a big class.
MIT Department
Sloan School of Management
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Creative Commons Attribution-Noncommercial-Share Alike
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DOI of Published Version
https://doi.org/10.1111/ecca.12109
