Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 598: The Firm as a Pool of Factor Complementarities

Assar Lindbeck () and Dennis J. Snower
Additional contact information
Assar Lindbeck: The Research Institute of Industrial Economics, Postal: P.O. Box 5501, SE-114 85 Stockhol, Sweden
Dennis J. Snower: Birkbeck College, Postal: Department of Economics, London, UK

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: Boundary of Firm; Complementarities of Production; Transaction Costs

JEL-codes: D20; D40; D80

15 pages, June 10, 2003

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