On The Power Relations Within The Enterprise

This dissertation studies the phenomenon of the power relationship within the firm. Through a synthesis of the available literature, it develops an economic explanation of the phenomenon.Coase, in his classic article published in 1937, 'The Nature of the Firm', suggested that transactions that are typically conducted within the firm are not governed by the price mechanism but by a power relationship. While many economists agree with this fundamental insight, there is no consensus on how to explain it. The focus at issue is what power relationship within the firm is, what role it plays and how it is formed. Economists' divergent views on these questions indicate that economic analysis of power relationship within the firm has still been incomplete and awaits further inquiry.The purpose of the dissertation is to offer a rigorous and convincing argument over the origin, nature, role and formation mechanism of the phenomenon of the power relationship within the firm. The major theories and concept frameworks on which the dissertation's analysis is founded are Marx's synergetic work theory, Chandler's theory of economies of scale and scope, Alchian and Demsetz's team production theory, Bowles and Gintis' short-side power model, Grossman, Hart and Moore's modern property rights approach, Raj an and Zingales' access model, and modern economic behavior theory.The power relationship within the firm is an anomalous phenomenon in the Walrasian paradigm. The firm in the Walrasian paradigm is as follows. The firm is an atom in pursuit of profit maximization. The production process of the firm is a dark instrument, which transform certain quantities of inputs into the maximum output attainable automatically and smoothly. Capital and labor are simply different kinds of inputs in the production process. The payments for capital and labor are totally set by market power and capital (labor) suppliers of any firm have no power to alter the transaction terms with its labor (capital) suppliers to their advantage and thus every firm generate zero economic profit. Every firm's value is equal to the sum of the market prices of the human assets and physical assets that it use and thus theformation and disbandment of a firm have no influence on the interest of any of its members.Through an efficient comparison of production within the firm and the scattered individual production coordinated through markets, the dissertation reveals that the origin of the power relationship phenomenon within the firm is that the suppliers of the resources to the firm in real world are unable to enter into legally binding complete contracts as Walras assumed. Then, through an equilibrium analysis of the strategic interactions among the suppliers of the resources to the firm, it reveals the nature, role and formation mechanism of the phenomenon of the power relationship within the firm.The conclusion of the dissertation is as follows. The firm is a form of cooperation among many resources owners on the wage labor institution. Through proper planning and coordination, cooperation within the firm, such as relationship-specific investment and the synergetic use of a lot of resources, can benefit the parties concerned, but these parties are unable to depend on the compelling force of the court to realize cooperative gains. Therefore, the performance of the firm as well as the gains of the parties concerned depends on the strategic interactions among these parties. In the strategic interactions, employers, relying on their control over supply-short currency capital and unique critical assets, are able to advance their interests by building appropriate monitoring and incentive mechanism to alter the behavior of employees, and employees lack such effectiveness on employers. In this sense, employer can be said to exercise certain power over employees with whom they interact. The power relationship within the firm plays a role in generating the rents of the firm and enhancing the value of the firm. Employers' exercise of power over employees is...