Norms and the Theory of the Firm

Abstract

This paper discusses some of the attempts economists have made in the last ten years or so to integrate norms into the theory of the firm. The paper argues that (a) although norms are undoubtedly very important both inside and between firms, incorporating them into the theory has been very difficult and is likely to continue to be so in the near future; (b) so far norms have not added a great deal to our understanding of such issues as the determinants of firm boundaries (the "make-or-buy" decision)--that is, at this point a norm-free theory of the firm and a norm-rich theory of the firm don’t seem to have very different predictions.