Scandinavian Working Papers in Economics

Seminar Papers,
Stockholm University, Institute for International Economic Studies

No 725: The Firm as a Pool of Factor Complementarities

Assar Lindbeck () and Dennis Snower ()
Additional contact information
Assar Lindbeck: Institute for International Economic Studies, Stockholm University, Postal: Stockholm University, S-106 69 Stockholm, Sweden
Dennis Snower: Birkbeck College, University of London, CEPR and IZA Bonn

Abstract: This paper presents a new approach to the theory of the firm by identifying factor complementarities as central to the determination of the firm’s boundaries. The factor complementarities may take a variety of forms: technological and informational complementarities, as well as economies of scale and scope. We examine the tradeoff between the gains from these complementarities and transactions costs. In so doing, we must abandon the standard dichotomy between the determinants of plant size and firm size. The influence of factor complementarities on firm size is examined in partial and general equilibrium frameworks.

Keywords: firm; complementarities; plant

JEL-codes: D23; J24; J31; J51; J53

17 pages, June 10, 2003

Note: IZA Discussion Paper No 882, Bonn October 2003

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