[HN Gopher] The Nature of the Firm (1937)
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The Nature of the Firm (1937)
Author : mooreds
Score : 74 points
Date : 2022-05-13 18:43 UTC (4 hours ago)
(HTM) web link (en.wikipedia.org)
(TXT) w3m dump (en.wikipedia.org)
| [deleted]
| user3939382 wrote:
| I've had this book sitting on my shelf for 7 years. I guess I
| should get around to reading it...
| dredmorbius wrote:
| Charles Perrow, Complex organizations : a critical essay, 1972,
| 1985. pp. 186--187 looks at the firm and intra- and inter-firm
| dynamics from a sociological perspective. It's in large part a
| review of the literature to the time of its writing, beginning
| with Weber and including serveral economists, though Coase only
| merits one mention. There's considerable attention paid to
| Herbert Simon and James March, among many others.
|
| https://www.worldcat.org/title/complex-organizations-a-criti...
|
| https://archive.org/search.php?query=Complex+organizations+:...
| dang wrote:
| Related:
|
| _The Nature of the Firm (1937)_ -
| https://news.ycombinator.com/item?id=16837168 - April 2018 (12
| comments)
|
| _The Nature of the Firm (1937)_ -
| https://news.ycombinator.com/item?id=12344575 - Aug 2016 (14
| comments)
|
| _The Nature of the Firm - Coase_ -
| https://news.ycombinator.com/item?id=3622639 - Feb 2012 (3
| comments)
| boppo1 wrote:
| Is there a simple way to browse older HN posts by date?
| pvg wrote:
| The search engine the form at the bottom takes you to is
| pretty good and has sorting by date. There's also
| https://news.ycombinator.com/front
| [deleted]
| haltingproblem wrote:
| This is one of the most seminal papers in Economics and the only
| to win a Nobel that does not have a single equation in it :)
|
| In general, Coase's transaction cost framework is very useful in
| the Internet era - Amazon EC2 can be viewed as a way for firms to
| lower transaction costs of scaling up and down to zero, something
| that not even large firms could manage, some time ago.
|
| Shopify is a way for small merchants to access costs per
| transaction that were only available to large ecommerce giants
| and so on and so forth.
|
| Transaction costs are just a model, and just like all models, the
| transaction cost model is imperfect and not always right, but
| often useful.
|
| What transaction costs in the modern economy are ripe to be pared
| down?
| paulpauper wrote:
| That was back when it was much easier to make contributions to
| the sciences. Now you need 50+ page paper with 2-4 authors full
| of stats and regression to get maybe published in a mid tier
| journal.
| igorkraw wrote:
| From the top of my head
|
| - Suing a powerful adversary if you are in the right
|
| - democratically changing a law (and abolishing old laws) to
| adapt to changed technologies
|
| - patents and copyright as a way to motivate innovation (those
| are transaction costs introduced with a noble intention, but I
| think they can be improved by e.g. just paying people to
|
| - land speculation (georgism ho!)
|
| - borders and restrictions on free movement
|
| - moralistic bans on drugs and prostitution instead of
| regulation to make those transactions safe and cut down on
| externalities
|
| The book "radical markets", while not 100% aligned with my
| politics gives a more detailed overview on some of these
| haltingproblem wrote:
| Great list.
|
| I think #1 is in the process of being unbundled. We _just_
| need a coordination platform which brings lead plaintiffs,
| backers and lawyers together on a platform. Perhaps you mean
| something else by it?
|
| Abolishing old laws already happens in some states but it
| needs to be lower transaction cost event. This would be a fun
| platform to build and something that can bring manifold
| benefit to society. Changing laws is a special and more
| complex case of creating new laws and has too much complexity
| maybe 10x harder than repealing old laws.
|
| The last two evoke too many beliefs about ideology, moralism
| and nativist beliefs so I won't go there.
|
| Can you extrapolate on land speculation?
| dang wrote:
| The paper is at
| https://onlinelibrary.wiley.com/doi/full/10.1111/j.1468-0335....
| eastbayjake wrote:
| Enginerrrd wrote:
| I actually am a member of a sort of 3 man firm that on paper
| exists at 3 separate companies. We keep our intra-firm
| transactions operating on basically market principles. "Can you
| do this part of job x consisting of this rigorously defined scope
| for y dollars?" Prices set themselves pretty fairly that way. If
| a job of a particular type starts to become more tedious, complex
| or time-consuming, the price adjusts naturally and continuously
| at an equilibrium.
|
| We're able to handle larger projects, offer greater breadth of
| services and service more clients than we would on our own, but
| we use one outward facing name so that clients feel they are
| interacting with one entity. We each have sub-speciallizations
| and clients are better served by the greater breadth of
| expertise. We almost always beat everyone on price too.
|
| Clients are often, but not always, shared.
|
| We each buy our own equipment, but we share it when needed and we
| share expertise. We each pitch in a 1/3 share for an office space
| to meet with clients.
|
| In practice it works wonderfully.
|
| But boy, 'the man' does not like that arrangement. They can't
| possibly fathom that there's an equal power dynamic, or that we
| really are separate entities, each with our own clients and
| business infrastructure. We just work together in only the ways
| each person finds mutually beneficial.
| lelandfe wrote:
| So if you share equipment, share an office, publicly use the
| same name, frequently work jointly on projects...
|
| How is this fundamentally different from a single company with
| 3 departments? What advantages are you garnering? Are there
| purely tax advantages to this?
| Enginerrrd wrote:
| Yeah so the biggest difference is, all expectations are
| financial. If you want to just leave for a month and input
| zero labor, we have no issues with that. You just still have
| to pay your share of rent.
|
| If we were partners, we'd basically have to have some sort of
| salary or profit-sharing agreement which would likely require
| all manner of careful management of expectations. So, for
| example, say we split profit 1/3, 1/3, 1/3. Well, how do you
| handle the situation where one partner is not putting out?
| What if they become less efficient for several months because
| of personal issues? What if one wants to just go travel for a
| month? What if one partner wants to be more lenient on their
| tax write-offs than others are comfortable with? Rather than
| hash out some complicated agreement with lawyers and all
| that, we just operate internally as independent companies.
|
| This way, problems are much more contained. If one partner
| starts fucking off, the others just stop sharing work. There
| is no "milking their hours" situation because that is
| reflected in the pre-work price negotiations. There's no
| unfairness in expectations, because we treat each other as
| separate entities and let the 'market' figure it out.
|
| Also, everyone has complete skin in the game on their own
| projects and own clients.
|
| I wouldn't say there are any inherent tax advantages except
| that you have complete flexibility to make it work for your
| own person.
| justinpowers wrote:
| This is very interesting. Similar to a path I almost went down
| with some partners, but it fizzled due to too many unknowns and
| lack of energy to research them. Would you be willing to
| expound on your arrangement? Either here or privately. In
| particular...
|
| What legal structure are you each using? sole proprietorships,
| llcs, s-corps? (Assuming you're US based)
|
| Are there any tax benefits/costs to this arrangement?
|
| Has the government hassled you regarding the arrangement? (It
| sounds like it has, but...how exactly and how did you respond?)
|
| Have counterparties hassled you or been scared off? Do they
| even "know" of the arrangement?
|
| Are there significant legal/transaction costs between the three
| of you? If not, is that simply because you have strong trust in
| each other?
| boppo1 wrote:
| Who is 'the man'? If it's not your clients... what is the NYT
| writing hit pieces about you guys or something?
| coward123 wrote:
| He / she likely means the IRS or other government regulatory
| bodies.
| labster wrote:
| The man be keepin us down.
| narush wrote:
| My (novice) highest-level summary of the argument in this paper:
| firms emerge as a result of transaction costs between people. By
| being in a firm together, people build shared structures, and as
| a result can reduce these transaction costs. A firm is like a
| ball of low transaction costs, pretty much.
|
| This paper is the first economics paper I ever read (a long time
| ago, excuse my if my summary is awful lol), and still one of the
| most thought-provoking and interesting papers I've encountered.
|
| The fun-to-think-about questions that it leads me to:
|
| 1. What sort of transaction costs between people today are
| _practically_ the most important to leading to a creation of a
| firm?
|
| 2. What if we built technology that reduced those transaction
| costs to near zero? E.g. what would it mean for there to be less
| incentives for a firm to form?
|
| 3. How does questions of transaction costs relate to market
| structure and monopoly?
|
| I guess mostly this paper is amazing b/c it made me realize I
| never really thought to ask the question "why companies in the
| first place?"
| [deleted]
| sigil wrote:
| On (2), here's something I've been wondering. Shouldn't the
| explosion of SaaS and remote work tools close the gap between
| internal/external transaction costs, and lead to a decrease in
| firm size? Because we've been seeing the opposite. [0]
|
| Maybe this just hasn't shown up in the numbers yet, because
| there's a delayed effect? Or do SaaS and remote work tools
| benefit firms internally just as much, or more, than someone
| contracting out work on the open market?
|
| [0] https://marginalrevolution.com/wp-
| content/uploads/2019/01/HN...
| pragmatic wrote:
| I think you are right but underestimating the sheer number of
| small SaaS companies out there.
|
| Just rode through a startup and acquisition in a space I'd
| never thought much about (way underserved but all kinds of
| money sliding around) until I worked there with a smaller
| than I would have thought possible team.
| mooreds wrote:
| > What sort of transaction costs between people today are
| _practically_ the most important to leading to a creation of a
| firm?
|
| Discovery of services (what can I help you with? what can you
| do for me) and trust (can I trust you to do task <x>? Can you
| trust me to pay you) are two of the biggest person to person
| transaction costs I see nowadays.
| Animats wrote:
| Yes. The transaction cost includes both trust for this
| transaction, and trust for future transactions. Supply chain
| issues are much more of a concern today than two years ago.
| pineconewarrior wrote:
| I was thinking the same. Leverage and trust as a mechanism
| of "sunk cost" on both parties.
| Barrin92 wrote:
| There's two articles related to this that I really like. One is
| Herbert Simon's paper from 1991 on the topic of organizations and
| markets with a great passage
|
| _" A mythical visitor from Mars, not having been apprised of the
| centrality of markets and contracts, might find the new
| institutional economics rather astonishing. Suppose that it (the
| visitor I'll avoid the question of its sex) approaches the Earth
| from space, equipped with a telescope that reveals social
| structures. The firms reveal themselves, say, as solid green
| areas with faint interior contours marking out divisions and
| departments. Market transactions show as red lines connecting
| firms, forming a network in the spaces between them. Within firms
| (and perhaps even between them) the approaching visitor also sees
| pale blue lines, the lines of authority connecting bosses with
| various levels of workers. As our visitor looked more carefully
| at the scene beneath, it might see one of the green masses
| divide, as a firm divested itself of one of its divisions. Or it
| might see one green object gobble up another. At this distance,
| the departing golden parachutes would probably not be visible. No
| matter whether our visitor approached the United States or the
| Soviet Union, urban China or the European Community, the greater
| part of the space below it would be within the green areas, for
| almost all of the inhabitants would be employees, hence inside
| the firm boundaries. Organizations would be the dominant feature
| of the landscape. A message sent back home, describing the scene,
| would speak of "large green areas interconnected by red lines."
| It would not likely speak of "a network of red lines connecting
| green spots."_
|
| That is itself referenced in the second piece which ties this
| into compuational complexity and socialist planning, by Cosma
| Shalizi.
|
| https://www.aeaweb.org/articles?id=10.1257/jep.5.2.25
|
| https://crookedtimber.org/2012/05/30/in-soviet-union-optimiz...
| arkis22 wrote:
| a slightly sarcastic but not incorrect purpose of the firm:
| having a large amount of employees gives you leverage against
| politicians.
|
| I think about that when I see some tech companies and their
| employment levels.
| lkrubner wrote:
| This also has implications when we discuss workers who want to
| "work from home." I reference Coase in "What work can be done
| from home? What work needs to be done at an office?" While I
| think this piece is carefully researched, it is easily the least
| popular thing I've ever written. I'm surprised at how angry
| people get around this subject. I don't fully understand what is
| going, but I've never written anything else that drew such angry
| reactions from people. Simply pointing out the limits of the
| work-from-home movement seems to leave some people on edge,
| defensive, wary, and emotional. I'm not sure why. Obviously there
| must be some limit to work-from-home.
|
| http://www.smashcompany.com/business/what-work-can-be-done-f..."
| haltingproblem wrote:
| Yours is one of the reasoned and illuminating takes on the WFH
| debate. I am going to share it with my team and one of my
| senior engineers who is extremely reluctant to come to the
| office, which in the long term will hurt his prospects.
|
| As for meltdowns, I think it is because you are poking at
| something irrational namely "the urge to work from home". WFH
| has been a "freebie" for most folks - to use your example jobs
| that should pay $110k are paying $250k.
|
| When you poke at this irrationality, like questioning the
| provenance of stolen goods, people get defensive and have
| emotional reactions. Deep down folks know that they have to
| accept the inevitability of going back or take a pay cut and
| neither option sits well.
| dylan604 wrote:
| People seem to just have these drastic reactions to everything
| now. Knee jerk reaction wants to blame it on social media.
| While the socials might not be THE reason, they definitely
| amplify it. A large portion of society seems to think that if
| you have a differing opinion/thought/belief on a given topic
| you are against them in a way that must be vigorously defended
| against without any consideration of the differing
| opinion/thought/belief.
| Enginerrrd wrote:
| It's so bad that when I hear something I WANT to believe, but
| merely ask why they think that particular thing or what are
| they basing that (unjustified) conclusion on, they
| immediately start assuming I believe in the contrary position
| and leveling personal attacks at me.
|
| Like fuck me for wanting more information and to base my
| beliefs on sound conclusions.
| acuozzo wrote:
| The issue is that many people view inquisitiveness now as a
| dog whistle due to its increasing use in bad faith by
| extremists. It's called "sealioning":
| https://en.wikipedia.org/wiki/Sealioning
| dylan604 wrote:
| bwahahahaha: "metaphorically described as a denial-of-
| service attack targeted at human beings."
| dylan604 wrote:
| I mean, who are YOU to question them in the first place. /s
|
| I have always had the "Asks why way too much" problem. Most
| people are defensive at first as if I had the gall the
| question them, but the ones I've learned the most from are
| the ones that realize the "why" isn't questioning them as
| it is questioning the process for better understanding.
| hn_version_0023 wrote:
| Do you also consider the limits of working from the office? I'm
| thinking of things like lost productivity from open office
| floor plans, for instance.
|
| I wonder how many firms arise simply to feed the ego of the
| people who start it? Certainly you must address this part of
| WFH? That fact was brought sharply into focus by the pandemic,
| no?
| dang wrote:
| If you email hn@ycombinator.com in a few weeks, I'll send you a
| repost invite for
| https://news.ycombinator.com/item?id=30914179, which will put
| the repost in the second-chance pool (explained at
| https://news.ycombinator.com/item?id=26998308).
|
| The reason for waiting is just that there's a sharp dropoff in
| interestingness along the repetition curve. A few weeks is long
| enough to flush the hivemind caches.
| lkrubner wrote:
| Thank you.
| Centigonal wrote:
| To me, it's pretty clear: A lot of people like working from
| home, and are wary that they will be forced back into the
| office, along with the long commutes and sometimes-frustrating
| social interactions that go along with it. They see arguments
| like yours as a real threat to their quality of life.
|
| Also, you make a lot of assertions in your post without
| substantiating them. This generally contributes to outcry when
| the assertions don't line up with people's personal experience.
| lkrubner wrote:
| In terms of making assertions from personal experience, I do
| emphasize that what I've seen is limited to New York City. If
| you live some place else, your experiences might be very
| different. Perhaps I should repeat this point.
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