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| Author: | Liu, P-W. Yang, X. |
| Title: | The theory of irrelevance of the size of the firm |
| Journal: | Journal of Economic Behavior and Organization
2000 : JUN, VOL. 42:2, p. 145-165 |
| Index terms: | Outsourcing Productivity Economic theory Companies by size Employment Models |
| Language: | eng |
| Abstract: | This paper formalizes Cheung, Coase, Stigler, and Young's theory of irrelevance of the size of the firm. This theory states that if division of labour develops within the firm, the average size of the firm and productivity go up side by side. If division of labour develops btw. firms, the average size of firms decreases as productivity goes up. Inframarginal analysis of the trade off btw. positive network effects of division of labour on aggregate productivity and transaction costs can predict recently popular business practices of down sizing, outsourcing, contracting out, focusing on core competence, and disintegration. Evidence is presented for a negative correlation btw. average employment of labour by firms and productivity. |
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