Working Paper No. 598

The Firm as a Pool of Factor Complementarities

Published: June 10, 2003Pages: 15Keywords: Boundary of Firm; Complementarities of Production, Transaction CostsJEL-codes: D20; D40; D80

The Firm as a Pool of Factor Complementarities Assar Lindbeck and Dennis J. Snower


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.

 

Assar Lindbeck

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The authors of this book, Niklas Elert, Magnus Henrekson and Mikael Stenkula, advise the economies of the European Union to become more entrepreneurial in promoting innovation and economic growth. The authors propose a reform strategy with respect to several aspects to achieve this goal.

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