Organization: Protection and Restriction

Abstract

This chapter is not a key chapter, but it serves as an indispensable one in keeping the theory complete. In previous chapters, we have already discussed the transaction cost issue and have indicated that even with complete information, manufacturers still face transaction cost, which is also one of the determining factors of the scales of enterprises. This chapter reviews this point again. The reasons why organization exists not only involve the reduction of transaction cost (whether the Coase transaction cost or the one in this book) but also involve the protection of power over scarce resources. Besides, for the first time, we propose the concept of organizational rationality and discuss the relationship between organizational and individual rationalities. The organization exerts both positive and negative impact on individuals. In fact, it is nearly impossible for manufacturers to optimize resource allocation when there is difference between organizational and individual rationalities. Suboptimal or satisfactory choices are more rational. Logically, the main content of this chapter is the premise of manufacturer and individual production function discussed in Chap. 5.