The Nature of the Firm: A Relationship-based Theory

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    Abstract

    This paper is intended to propose a relationship-based theory of the firm (R’BT), an alternative to the transaction cost theory. The R’BT takes relationship disharmony (rather than transaction costs) as its basic unit of analysis of the nature of the firm, and argues relationship disharmony derives from conflict of interests, a problem faced by any human organizations; to reduce the conflict of interests, the best way is to harmonize relationships by mutually accommodating or internalizing the other party’s interests into its own consideration; the degree of harmony or disharmony in the relationships will in turn determine the performance of the organization in question. This paper provides a completely different explanation from the transaction cost economics when addressing issues such like the existence, boundary and internal organization of the firm. Also discussed are its implications for organizational management and economy
    Original languageEnglish
    Place of PublicationFrederiksberg
    PublisherDepartment of International Economics and Management, Copenhagen Business School
    Number of pages31
    Publication statusPublished - 2009
    SeriesWorking Paper / Department of International Economics and Management, Copenhagen Business School
    Number3-2009

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