Strategic Management and (Economic) Theories of the Firm

ORG519 Strategic Management and (Economic) Theories of the Firm

  • Topics


    The history of the theory of the firm

    In this session we focus briefly on the history of the theory of the firm, the key explananda in the theory, the kind of market failures that help explain the existence and boundaries of the firm, the key differences between extant theories, and finally place the theory of the firm in the context of the new institutional economics.

    The theory of the firm in agency perspective

    Agency theory shows why problems may arise in relationships where there is a division of labor between agents and how these problems can be remedied. The agency problem was one of the problems to be considered as a reason to use of firm organization. We discuss the arguments presented in the literature and reflect on the limitations of these explanations for the existence of firms.

    The transaction cost theory of the firm

    Transaction cost economics is one of the key theories in the economics of the firm, and the central concepts of this theory - that is, specific assets, hold-up, opportunism, bounded rationally and incomplete contracts - are much used in a number of fields in management. Here we focus on Williamson´s brand of transaction cost economics and some recent important extensions of TCE.

    The property rights theory of the firm

    Property rights go much beyond intellectual property rights. Property rights theory is a branch of applied micro-economics that is concerned with the consequences (in terms of efficiency) of the allocation of rights to control assets and derive income from them. While not yet as broadly used as agency and transaction cost theory, interest in the economics of property rights is growing in strategic management.


  • Learning outcome

    Learning outcome

    This course provides a Ph.D. level survey of the economics of the firm, concentrating on transaction cost theory, agency theory and property rights theory, as well as a discussion of the use of these theories in strategic management. The objective of this seminar is to survey the major currents in the economics of the firm that has had an impact on the development of strategic management, make you familiar with current discussions of the explanatory status of these theories, as well as to strengthen your ability to use arguments from the economic theory of the firm in theory development.

    Knowledge - the candidate

    is in the forefront of knowledge in Theory of the Firm and masters the field¿s philosophy and methods.

    can contribute to the development of new knowledge, new theories, interpretations and forms of documentations within the theory of the firm.

    Skills - the candidate

    can carry out and handle complex academic issues and challenge established knowledge and practices within the theory of the firm.

    Competence - the candidate

    can participate in debates within the field of the theory of the firm in international forums

  • Teaching


    - The class will meet two days a week for two weeks (6 hours per day) - The course is taught using a mix of lectures and discussion on the basis of lectures. However, we will also solve case questions on the basis of the presented theories. - All students are expected to be prepared on all articles/readings.

  • Required prerequisites

    Required prerequisites


  • Requirements for course approval

    Requirements for course approval

    Course participation, presentations & discussions.

  • Assessment


    A paper is required for the completion of this course. You should choose a topic that interests you and match the topic with one of the theories we cover in this seminar. You are to develop a theoretical paper. The length of the paper should be minimum 10 pp, exclusive of references, tables, etc.

  • Grading Scale

    Grading Scale

    Grades will be given (Pass/Fail). You will be evaluated on the comprehensiveness of the literature review, the degree of integration and synthesis applied to the extant literature, and the thoughtfulness of your appraisal. The paper is to be sent to me in electronic format (date to be decided).


  • Computer tools

    Computer tools




  • Semester



  • Literature


    - Foss, N.J. and P. G. Klein. 2009. "Organizational Governance" in Raphael Wittek, Tom Snijders, and Victor Nee, eds., Handbook of Rational Choice Social Research. New York: Russell Sage Foundation.

    - Coase, R.H. 1937. The nature of the firm, Economica 4: 386-405.

    - Coase, R. H. 1992. "The Institutional Structure of Production," American Economic Review 82: 713-719.

    - Klein, P. G. 2000. "New Institutional Economics," in Boudewijn Bouckeart and Gerrit De Geest, eds., Encyclopedia of Law and Economics (Cheltenham, U.K.: Edward Elgar, 2000), pp. 456-89.

    - Alchian, Armen A., and Harold Demsetz. (1972), "Production, Information Costs, and Economic Organization," American Economic Review 62(5): 772-795.

    - Alchian, Armen A. and Susan Woodward. (1988), "The Firm is Dead; Long Live the Firm," Journal of Economic Literature 26: 65-79.

    - Barzel, Yoram. (1989), Economic Analysis of Property Rights, Cambridge: Cambridge University Press.

    - Cheung, Stephen N.S. (1983), "The Contractual Nature of the Firm, " Journal of Law and Economics 26: 1-22.

    - Demsetz, Harold. (1995), The Economics of the Business Firm: Seven Critical Commentaries, Cambridge: Cambridge University press.

    - Scott E.Masten . (1991), "A legal Basis for the Firm" in Oliver E. Williamson and Sidney G. Winter. 1991. The Nature of the Firm, Oxford: Oxford University Press.

    - Simon, A. Herbert. (1951), "A Formal Theory of the Employment Relationship" in H.A. Simon (1982) (ed.), Models of Bounded Rationality, Cambridge: MIT Press

    - Williamson, O. E. 2002. "The Theory of the Firm as Governance Structure: From Choice to Contract," Journal of Economic Perspectives 16: 171-195.

    - Mayer, K. and N. Argyres. 2004. Learning to Contract: Evidence from the Personal Computer Industry. Organization Science, 15: 394-410.

    - Nickerson, J.A. and T. R. Zenger. 2004. A Knowledge-Based Theory of the Firm: The Problem-Solving Perspective. Organization Science, 15: 617-632.

    - Ghoshal, S., and P. Moran. 1996. "Bad for Practice: A Critique of the Transaction Cost Theory," Academy of Management Review 21: 13-47.

    - Moore, J. 1992. "The firm as a collection of assets." European Economic Review, 36: 493-507.

    - Alchian, A.A. 1965. "Some Economics of Property Rights," Il Politico 30: 816-829.

    - Foss, K. and N.J. Foss. 2005. Value and Transaction Costs: How the Economics of Property Rights Furthers the RBV," Strategic Management Journal, 26: 541-553.

    - Gibbons, R. 2005. "Four formal(izable) theories of the firm?," Journal of Economic Behavior and Organization 58: 200-245.

    - Whetten, D.A. (1989): "What constitutes a theoretical contribution?," Academy of Management Review, 14(4): 490-495.a


ECTS Credits
Teaching language
Spring, Autumn

Course responsible

Kirsten Foss, Department of Strategy and Management.