Capabilities and the Theory of the Firm

The current decade has experienced a powerful expansion of work on the firm, both from a capabilities perspective and from a contractual perspective. These two bodies of theories are sometimes regarded as fundamentally different, as their fields of applications differ (knowledge-accumulation vs contracts and incentives). However, we have to integrate propositions from capabilities perspectives with ideas about economic organization (markets, hybrids, firms). It is because only a more unified theory will enable us to understand such issues as the dynamics of the modern corporation, and, more topically, the costs and advantages of outsourcing. I focus on the relations between both these bodies of theories. It’s possible to debate in favor of a relation of complementarity between the two and pursue a research strategy on this basis…


I. Introduction
II. Some Empirical Anomalies
II.i. Alfred Chandler on the Modern Corporation
II.ii. The Perils of Excessive Outsourcing
III. Capabilities and Contractual Theories of the Firm
III.i. Towards an Integration
III.ii. Possible Points of Contact
IV. Firms, Knowledge, and Production
IV.i. The Theory of Production
IV.ii. Capabilities perspectives on Productive Activities
IV.iii. The Social Character of Knowledge in Firms
IV.iv. The Neglect of Production in Contractual Theories
V.i. Differential Capabilities and the Boundaries of the Firm
V.ii. Production Costs and Communication Costs
VI. Concluding Comments

Source: Kirsten Foss

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Capabilities and the Theory of the Firm