Thursday, May 08, 2008

Firms: Because that's how we roll

A Naturalistic Approach to the Theory of the Firm: The Role of Cooperation
and Cultural Evolution

Christian Cordes, Peter Richerson, Richard McElreath & Pontus Strimling
Journal of Economic Behavior & Organization, forthcoming

One reason why firms exist, this paper argues, is because they are suitable organizations within which cooperative production systems based on human social predispositions can evolve. In addition, we show how an entrepreneur - given these predispositions - can shape human behavior within a firm. To illustrate these processes, we will present a model that depicts how the biased transmission of cultural contents via social learning processes within the firm influence employees' behavior and the performance of the firm. These biases can be traced back to evolved social predispositions. Humans lived in tribal scale social systems based on significant amounts of intra- and even intergroup cooperation for tens if not a few hundred thousand years before the first complex societies arose. Firms rest upon the
social psychology originally evolved for tribal life. We also relate our conclusions to empirical evidence on the performance and size of different kinds of organizations. Modern organizations have functions rather different from ancient tribes, leading to friction between our social predispositions and organization goals. Firms that manage to reduce this friction will tend to function better.

(Nod to KL)

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