INDIRECT PRICING THEORY OF THE FIRM: A GENERAL-EQUILIBRIUM ANALYSIS INVOLVING PRODUCTION TECHNOLOGY AND MANAGEMENT SERVICE

This paper develops a general-equilibrium model that involves production technology and management service to study the emergence of firms from the perspective of saving transaction costs. Inframarginal analysis is used to formalize Coase and Cheung's theory of the firm and to generalize Yang and Ng's indirect pricing theory of the firm. Not only the emergence of firms, their growth and contraction, but also the relevant conditions for the existence of technology entrepreneurs and professional management are also investigated. Copyright 2007 The AuthorsJournal compilation 2007 Blackwell Publishing Ltd