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It is traditional in the theory of the firm to define the production opportunity set available to the firm in terms of its boundary -- the maximum at… - William H. Meckling
" "It is traditional in the theory of the firm to define the production opportunity set available to the firm in terms of its boundary -- the maximum attainable set of output quantities for various input quantities, given the state of technology and knowledge. This boundary is the production function of the firm. One of our purposes here is to point out the dependence of such production functions on the structure of property rights and contracting rights within which the firm exists. We redefine the production function in order to recognize the dependence of output on the structure of property and contracting rights. That expanded framework is then used to discuss a concrete set of problems surrounding the role of labor in the firm ranging from the 'labor-managed firm' system (in which tradable capital value residual claims [common stock] are legally prohibited), and the codetermination and industrial democracy movements (in which management participation by labor is required by law), to cooperatives and professional partnerships (i.e., quasi-labor-managed firms which arise out of the voluntary contracting process), and the capitalist corporation.
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About William H. Meckling
William H. Meckling (1921 - May 15, 1998) was an American economist and professor of Management and Government Policy and Dean at the , University of Rochester, working in the areas of "managerial economics and the economic analysis of law, and his work received international recognition" (Source: Currents, 1998).
Also Known As
Alternative Names:
Bill Meckling
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William Meckling
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William Henry Meckling
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William "Bill" Henry Meckling II
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Additional quotes by William H. Meckling
The examples [of economics] all had to relate to management. In price theory, we talked about two divisions within a firm, a manufacturing division and a distribution division. We talked about what price manufacturing would set if it set the price and what price distribution would set. We didn't talk about the social implications of this; we talked about what it would mean to the profits of the firm. Then we introduced competition and asked what the outcome would be. Out of this came a new way of looking at markets and the internal organization of firms. A key problem is assigning decision rights within a firm. You want to assign the rights where the knowledge to use them exists.
This paper analyzes the relations between knowledge, control and organizational structure both in the market system as a whole and in private organizations. Limitations on the mental capacity of the human mind and the costs of producing and transferring knowledge means that knowledge relevant to all decisions can never be collected in the mind of a single individual or a small body of experts. This means that if the knowledge valuable to a particular decision is to be used in making that decision, there must be a system for partitioning out decision rights to individuals who already have the relevant knowledge and abilities or who can acquire or produce them at the lowest cost. Self interest on the part of individual decision-makers means a control system is required to motivate individuals with the decision rights and the relevant knowledge to use those decision rights appropriately. This control problem is solved in a capitalist economy by a system of alienable property rights.
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