The Firm as a Dedicated Hierarchy: A Theory of the Origin and Growth of Firms

The Quality of Entrepreneurs

“…In their setting, there is no entrepreneurship in equilibrium due to ownership rights being fully contractible. 5 In the same tradition, but with imperfect property rights, Rajan and Zingales (2001) considers the optimal choice of organisation for a firm with an exogenously given Ôcritical resourceÕ controlled by an owner. In my setting, the employee has informal control in that only he has the knowledge and human capital necessary for the innovation.…”

“…This question is eliminated in the current setting by assuming that the participation of the employee is essential to develop the idea. is no start-up activity by workers in equilibrium in Rajan and Zingales (2001), due to information being complete. It is interesting to note, however, that both frameworks obtain the prediction that optimal firm size increases in the strength of property rights.…”

In Search of New Foundations

“…In Rajan and Zingales (1999) what distinguishes the firm from the market is the web of specific investments built around a critical resource. To acquire power over human capital, an entrepreneur needs control (not ownership) over some valuable resource, which need not be a physical or alienable asset but can even be her own human capital.…”

“…Although this has not been done in this context yet, it is easy to sketch how it could be done. In Rajan and Zingales (1999) outside ownership can be supported only when the web of specific investments around the critical resource is strong enough that the ownership of the critical resource, even without daily control, confers some power. For this to happen, though, an organization should accordingly be designed and modeled over time.…”

A Theory of Trade Secrets in Firms

“…Instead, I concentrate on trade secrets protection through eliminating employee turnover. This makes the present article related to Carmichael and MacLeod (2000) and Rajan and Zingales (2000), who also investigate dissemination of trade secrets through turnover. Carmichael and MacLeod (2000) focus on how the turnover affects the ratchet effect in piece-rate incentive schemes.…”