Overview: A new approach to explaining the existence of firms andmarkets, focusing on .variability. and .coordination.. Itstands in contrast to the emphasis on transaction costs, and onmonitoring and incentive structures, which are prominent in most ofthe modern literature in this field. This approach, called thevariability approach, allows us to: show why both the need forcommunication and the coordination costs increase when the division oflabor increases; explain why, while the firm relies on direction, themarket does not; rigorously formulate the optimum divisionalizationproblem; better un
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