How Does Opportunistic BehaviorInfluence Firm Size?

This paper relates firm size and opportunism by showing that, given certain behavioraldispositions of humans, the size of a profit-maximizing firm can be determined by cognitiveaspects underlying firm-internal cultural transmission processes. We argue that what firms dobetter than markets – besides economizing on transaction costs – is to establish a cooperativeregime among its employees that keeps in check opportunism. A model depicts theoutstanding role of the entrepreneur or business leader in firm-internal socialization processesand the evolution of corporate cultures. We show that high opportunism-related costs are areason for keeping firms’ size small...