TAILIEUCHUNG - THẠC SỸ KINH TẾ - KINH TẾ VI MÔ - CHAPTER 6

In conventional economic discussions of how firms are managed, incentives are nowhere considered. This is the case because the “firm” is little more than a theoretical “black box” in which things happen somewhat mysteriously. Economists typically acknowledge that the “firm” is the basic production unit, but little or nothing is said of why the firm ever came into existence or, for that matter, what the firm is. | CHAPTER 6 Reasons for Firm Incentives Amazing things happen when people take responsibility for everything themselves. The results are quite different and at times people are unrecognizable. Work changes and attitudes to it too. Mikhail Gorbachev In conventional economic discussions of how firms are managed incentives are nowhere considered. This is the case because the firm is little more than a theoretical black box in which things happen somewhat mysteriously. Economists typically acknowledge that the firm is the basic production unit but little or nothing is said of why the firm ever came into existence or for that matter what the firm is. As a consequence we are told little about why firms do what they do and don t do . There is nothing in conventional discussions that tells us about the role of real people in a firm. How are firms to be distinguished from the markets they inhabit especially in terms of the incentives people in firms and markets face That question is seldom addressed other than perhaps specifying that firms can be one of several legal forms for example proprietorships partnerships professional associations or corporations . In conventional discussions of the theory of the firm firms maximize their profits which is their only noted raison d être. But students of conventional theory are never told how firms do what they are supposed to do or why they do what they do. The owners presumably devise ways to ensure that everyone in the organization follows instructions all of which are intent on squeezing every ounce of profit from every opportunity. Students are never told what the instructions are or what is done to ensure that workers follow them. The structure of incentives inside the firm never comes up because their purpose is effectively assumed away people do what they are supposed to do naturally or by some unspecified mysterious process. For people in business the economist s approach to the firm must appear strange indeed given that .

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