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The Firm As A Nexus Of Strategies

Author

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  • GREGORY K. DOW

    (Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, British Columbia, V5A 1S6, Canada)

Abstract

This paper replaces the standard view of the firm as a nexus of contracts with a repeated game framework where input contributions and side payments are self-enforced. General production technologies and flexible transfers among team members are allowed. When an incentive constraint binds, input demand and output supply are influenced by the discount factor, the probability of exogenous team dissolution, and the aggregate value of outside options. When this incentive constraint does not bind, the firm maximizes profit in the usual way. I discuss examples involving the Cobb-Douglas technology, firms with a single residual claimant, and partnerships.

Suggested Citation

  • Gregory K. Dow, 2004. "The Firm As A Nexus Of Strategies," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 6(04), pages 525-554.
    • Handle: RePEc:wsi:igtrxx:v:06:y:2004:i:04:n:s0219198904000344
    DOI: 10.1142/S0219198904000344
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    References listed on IDEAS

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    1. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
    2. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, April.
    3. Miller,Gary J., 1992. "Managerial Dilemmas," Cambridge Books, Cambridge University Press, number 9780521372817, October.
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    Cited by:

    1. Dow,Gregory K., 2019. "The Labor-Managed Firm," Cambridge Books, Cambridge University Press, number 9781107589650, October.

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    More about this item

    Keywords

    Theory of the firm; team production; repeated games; self-enforcement; implicit contracts; incentive constraints; transferable utility;
    All these keywords.

    JEL classification:

    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • C0 - Mathematical and Quantitative Methods - - General
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics

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