A HIERARCHICAL THEORY OF THE FIRM

This paper provides a mathematically coherent and concise formulation of the Williamson market‐failure approach and, hence, develops models for single‐level and multilevel firms and organizations. These models optimally determine the extent of integration for each viable link on every hierarchical level, When the models are reformulated in terms of four operational parameters that determine integration, applied benefit‐cost methods can be utilized, in practice, to model a firm. Both static and dynamiclmodels‐are presented.