Economic Organization #2

Some of the terms in the list in Economic Organization #1 -- centralized contractual agent, monitor, and residual claimant -- aren’t commonly used in business to my knowledge. They probably came from a seminal article by Armen Alchian & Harold Demsetz, published in 1972, which is in the book’s references. I quote the following from the article:

"Two important problems face a theory of economic organization -- to explain the conditions that determine whether the gains from specialization and cooperative production can better be obtained within an organization like the firm, or across markets, and to explain the structure of the organization." - Production, Information Costs, and Economic Organization, American Economic Review 62: 777–795 (link).

“Usual explanations of the gains from cooperative behavior rely on exchange and production in accord with the comparative advantage specialization principle with separable additive production. However, as suggested above there is a source of gain from cooperative activity involving working as a team, wherein individual cooperating inputs do not yield identifiable, separate products which can be summed to measure the total output. For this cooperative productive activity, here called "team" production, measuring marginal productivity and making payments in accord therewith is more expensive by an order of magnitude than for separable production functions“ (ibid.)

This blog article relates the Alchian-Demsetz article to Austrian economics.