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Article Excerpt
Theories of the Firm by Demetri Kantarelis, 2nd Edition, ISBN: 0-907776-34-5, Pages: 314 (Buckinghamshire: Inderscience Enterprises, 2007)
The Theories of the Firm deals with concerns that are important and urgent in industrial organization, microeconomics, managerial economics, venture capital, contracts, torts, and corporations. The methodological structure of the inquiry can be compared to an Aristotelian approach, not on ethics as discussed on page 19 of the text, but in the metaphysical mode of defining a subject matter. Chapter 1 starts out by placing the topics to be discussed in the domain of the 21st Century, delineating the genus of the investigation. In Chapter 2, the firm is central in that domain, performing the role of a decision maker. The firm therefore, is what we wish to ponder upon. Chapters 3-9 lay out all the characteristics that the author thinks we need to know, namely the substances and substrata of the knowledge to be gained from the book. The division is therefore, methodologically tight. The readers are in for an adventure in the presentation of the Theories of the Firm with charts and math.
In Chapter 2, the author foreshadows the direction the Theories of the Firm will take in the rest of the book. The direction places the firm largely in the role of a decision maker. Broadly speaking, decision-making involves the use of deductions, statistical inference, and analogies (Gilboa and Scheidler, 2001, 2). In Chapter 3, we learn that the decision-making role of the firm has progressed from the neoclassical standpoint of profit maximization to sales maximization, utility maximization, and satisficing. From the Operation Research point of view, Kenneth Arrow explained that, "... the ideal picture is that someone, presumable the firm that hires the operations researcher, hands him, on a silver platter, an objective function. By talking to the engineers, or by looking into a few scientific laws, he determines the policy alternatives available and also the model" (Arrow 1984, Vol. 4, 55-56). In this decision-making role of the firm, the focus is on the managers and the owners. But, as Frank Hahn puts it: "The firm is not a person. So what do we mean by the expectations of the firm? Clearly it must be the managers who are meant. But can managers take actions which are independent of those of shareholders?
Someone after all hires the manager" (Hahn, 1984, 180) Such difficult questions are tackled by the book.
On a more general foundation, the author explains that the firm makes strategic and statistical decisions on a rational basis. The firm's objective is to decide what to produce. The classical economist would say that what we start...
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