A Behavioral Theory of the Firm

A Behavioral Theory of the Firm

A Behavioral Theory of the Firm

A Behavioral Theory of the Firm

Excerpt

This book is about the business firm and the way it makes economic decisions. We propose to make detailed observations of the procedures by which firms make decisions and to use these observations as a basis for a theory of decision making within business organizations. Our articles of faith are simple. We believe that, in order to understand contemporary economic decision making, we need to supplement the study of market factors with an examination of the internal operation of the firm -- to study the effects of organizational structure and conventional practice on the development of goals, the formation of expectations, and the execution of choices.

The rationale for such a belief is also simple. The modern "representative firm" is a large, complex organization. Its major functions are performed by different divisions more or less coordinated by a set of control procedures. It ordinarily produces many products, buys and sells in many different markets. Within the firm, information is generated and processed, decisions are made, results are evaluated, and procedures are changed. The external environment of the firm consists, in part, of other firms with comparable characteristics. If the market completely determined the firm's economic behavior, these internal attributes would be little more than irrelevant artifacts. But the market is neither so pervasive nor so . . .

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