DP4242 The Firm as a Pool of Factor Complementarities

Author(s): Assar Lindbeck, Dennis J. Snower
Publication Date: February 2004
Keyword(s): economies of scale and scope, factor complementarities, firm, transaction costs
JEL(s): D21, D23
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=4242

This Paper presents a new approach to the theory of the firm by identifying factor complementarities as central to the determination of the firm’s boundaries. The factor complementarities may take a variety of forms: technological and informational complementarities, as well as economies of scale and scope. We examine the trade-off between the gains from these complementarities and transactions costs. In so doing, we must abandon the standard dichotomy between the determinants of plant size and firm size. The influence of factor complementarities on firm size is examined in partial and general equilibrium frameworks.