Reference Points and the Theory of the Firm
In this article I argue that it has been hard to make progress on Coase's theory of the firm agenda because of the difficulty of formalizing haggling costs. I propose an approach that tries to move things forward using the idea of aggrievement costs, and apply it to the question of whether a transaction should be placed inside a firm (in-house production) or in the market place (outsourcing).
This article is based on the inaugural Coase Lecture, presented at the London School of Economics in February, 2007. I am grateful to Paul Niehaus for research assistance and to the U.S. National Science Foundation through the National Bureau of Economic Research for financial support. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Oliver Hart, 2008. "Economica Coase Lecture Reference Points and the Theory of the Firm," Economica, London School of Economics and Political Science, vol. 75(299), pages 404-411, 08.