Business firms, in which controlled cooperation takes place, are the first important implication of costly transactions. The laissez-faire filtering … - Harold Demsetz

Modern analysis has yet to describe inefficiency in a world where indivisibilities are present and knowledge is costly to produce.

The mark of a capitalistic society is that resources are owned and allocated by such nongovernmental organizations as firms, households, and markets. Resource owners increase productivity through cooperative specialization and this leads to the demand for economic organizations which facilitate cooperation. When a lumber mill employs a cabinetmaker, cooperation between specialists is achieved within a firm, and when a cabinetmaker purchases wood from a lumberman, the cooperation takes place across markets (or between firms). Two important problems face a theory of economic organization—to explain the conditions that determine whether the gains from specialization and cooperative production can better be obtained within an organization like the firm, or across markets, and to explain the structure of the organization.

A relevant notion of efficiency must refer to scarcity and people as they are, not as they could be.