The Nature Of The Firm

The research of classical economics on the firm theory mainly discussed the influence of the division of labor on the productivity of the firm, on which the division of labor was considered as the main engine; while the firm was simplified as a "black box" in neoclassical economics. Besides, Modern enterprise theory put emphasis on the perspective of transaction to explore the nature of the enterprise, hierarchy, ownership structure and the principal—agent problem. These schools of enterprise theory all have their own focus and their understanding of the enterprise is not comprehensive enough. Considering the defects of the existing enterprise theories, this paper integrates division of labor and transaction cost to build a comprehensive framework of firm theory, and try to explore some core questions of the firm theory. Within the framework, several issues, such as the nature of the firm, the origin of the enterprise, the size of the firm and the ownership structure, was explored.To accomplish the goal of this research, this paper firstly reviews the most important results of the existing theories about the firm. On the basis of the review, a new framework, with comprehensive consideration of the enterprise production and trading function, was put forward to explore the theory of the firm. The second chapter firstly expounds the basic theory of division of labor and transaction cost and then analyses the unique economic characteristics of specialized work——laborers can choose to take the initiative to provide the attribute of labor. The transaction cost of specialized work increases along with the complexity increasing. The third chapter is based on the division of labor and transaction cost to explain the nature of the firm, and points out that the firm is the combination of a set of contracts which trading specialized work, the reason for the existence of the enterprise is the "experts" knowledge in specialized labor enables enterprise saving transaction costs of specialized work. In addition, this chapter also analyzes the size of enterprise and points out that the more complexity of the labor the laborer provided, the laborer should have more control and ownership within the enterprise. The fourth chapter embarks from the division of labor under the condition of special knowledge accumulation effect, analyzes the deepening of division of labor and transaction cost reducing mechanism of mutual promotion. The origin of firm is the result of mutual promotion of the division of labor and transaction cost.Because of the influence of the division of labor to the enterprise production cost and transaction cost interaction, dynamic scale can not be sure. The fifth chapter takes the historical evolution of the putting on system —— concentrated plant —OEM as an example to support the above theoretical framework of specialization and transaction cost. Finally, this paper reaches several main conclusions and points out some problems which should be researched in the future.