How Does Opportunistic Behavior Influence Firm Size? An Evolutionary Approach to Organizational Behavior

This paper relates firm size and opportunism by showing that, given certain behavioral dispositions of humans, the size of a profit-maximizing firm can be determined by cognitive aspects underlying firminternal cultural transmission processes. We argue that what firms do better than markets – besides economizing on transaction costs – is to establish a cooperative regime among its employees that keeps in check opportunism. A model depicts the outstanding role of the entrepreneur or business leader in firminternal socialization processes and the evolution of corporate cultures. We show that high opportunismrelated costs are a reason for keeping firms’ size small
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