Stakeholders and Economic Theories of the Firm

Economic Theories of the Firm: The nature of different companies and their governance has changed the methods used in addressing their economic approaches. The inclusion of economic theories ad theories has helped to address the concern while giving an apparent position of that institution as a way of expressing capitalism. The association between economist and legal understanding have had a significant impact in explaining the rationale. According to Coase, firms because most of them are well equipped to deal with all the transaction cost that is inherent in exchange and production as opposed to an individual one. The emergence of firms was also attributed to the reduction of expenses such as information and search costs, policing and enforcement costs, and keeping trade secrets that have a significant impact in most markets around the world in the recent past. Besides, Alchian and Demsetz assert that the government thoroughly and adequately governs all activities within the firms. They correctly emphasized that roles of contracts as the drivers for voluntary exchange is to monitor all situations in which there is a team or joint input productions. Alchian and Demsetz further reiterated that unity and working together in a firm eases the tension that might be realized among workers.
Economist further attempted to address the impacts of cost and legal understandings to resonate the nature of firms. For instance, Jensen and Meckling’s ideas on agency costs and the firm as a ‘nexus of contracts’ assert that the success of a corporation is based on the collection of agreements between different people, primarily stakeholder. These economists defined the relationship of agencies in terms of the nature of the contracts that they have for services on behalf of other stakeholders. Similarly, in responding to the emergence of firms, Williamson suggests the amount of assets that a company has determined its workability and the support that the government may provide to them. However, ownership of these assets remained to be a point of concern, especially in terms of control measures that might be deployed. Hart holds that the boundary of a firm is the set of physical assets over which a group or an individual can access. Overall, based on the reiterations and arguments made by the economist, Alchian and Demsetz’s account sound more convincing. It highlights the importance of working together and the outcome.
Stakeholder Theories of the Firm: The narrow view of the company and its governance evident in the economic accounts called for exploration of the stakeholders’ theories with a pursuit to outline the basic concepts that they need to take into consideration before making assumptions. Donaldson and Preston categorize different versions of stakeholder theories based on the legitimate stakes available in the corporate activity concerning their interest in the firm and overall value. However, they argued that the broad nature of a corporation is based on managerial sense because of their descriptive nature. Notably, the prediction can only be made if they can positively impact recommendations that will help in constituting stakeholder management. Donaldson and Preston further argued the success of stakeholder management is based on the all the acceptances that need to be taken into consideration by them as opposed to the shareholders to allow identification of their legitimacy in the overall usefulness in the organization. The basis of this theory, therefore, is based on the active participation of stakeholder in the management process as opposed to the inclusion of shareholders. Overall, based on the outlined jurisprudences, the theory adequately resolves the problems identified and formulate the best avenues for future use and explorations.

Benkler, Yochai. “Coase’s Penguin, or, Linux and” The Nature of the Firm”.” Yale law journal (2002): 369-446.
De Alessi, Louis. “Property rights, transaction costs, and X-efficiency: an essay in economic theory.” The American economic review 73, no. 1 (1983): 64-81.
De Souza Filho, Hildo Meirelles, and Bruno Varella Miranda. “Asset specificity, the intensity of coordination, and the choice of hybrid governance structures.” Journal of Agribusiness in Developing and Emerging Economies (2019).
Windsor, Duane. “Jensen’s approach to stakeholder theory.” In Unfolding stakeholder thinking, pp. 85-100. Routledge, 2017.
Yin, Y., Wang, Y., & Lu, Y. (2019). Why firms adopt empowerment practices and how such practices affect firm performance? A transaction cost-exchange perspective. Human resource management review, 29(1), 111-124.

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