Abstract
Even as advances in information theory over the last quarter century have cast increasing doubt on the proposition that firms successfully maximize profits, the objective of profit maximization continues to be an axiomatic feature of the neoclassical theory of the firm. This paper attempts to improve our understanding firms by treating the objective function as an open question. Specifically, an ontogenetic thought experiment is undertaken to address the question of what differentiates production teams from firms by asking why team members would sell their control rights to a principal, thereby transforming the team into a firm. What results is an account of the emergence of the objective of profit seeking. Profit seeking emerges endogenously as a more fit alternative than the objective of value maximization, which is less capable of coping with uncertainty through purposive adaptation.
Similar content being viewed by others
References cited
Alchian, Armen. A. 1950. Uncertainty, evolution, and economic theory. Journal of Political Economy 58: 211-221.
Alchian, Armen. A. & Harold Demsetz. 1972. Production, information costs, and economic organization. American Economic Review 62: 777-795.
Axelrod, Robert. 1984. The evolution of cooperation. Basic Books, New York.
Axelrod, Robert. 1997.The complexity of cooperation: agent based models of competitionandcollaboration. Princeton University Press, Princeton.
Choi, Young Back. 1993. Paradigms and conventions: uncertainty, decision making, and entrepreneurship. University of Michigan Press, Ann Arbor.
Coase, Ronald. 1937. The nature of the firm. Economica 4: 386-405.
Crouch, Robert. 1979. Human behavior: an economic approach. Duxbury Press, North Scituate.
Dawkins, Richard. 1976. The selfish gene. Oxford University Press, Oxford.
Enke, Stephen. 1951. On maximizing profits: a distinction between chamberlin and robinson. American Economic Review 41: 566-578.
Hart, Oliver. 1995. Firms, contracts, and financial structure. Oxford University Press, New York.
Hart, Oliver & John Moore. 1990. Property rights and the nature of the firm. Journal of PoliticalEconomy98: 1119-1158.
Hirshleifer, Jack. 1978. Natural economy versus political economy. Journal of Social Biological Structures 1: 319-337.
Hirshleifer, Jack. 1982. Evolutionary models in economics and law: cooperation versus conflict strategies. Research in Law and Economics 4: 1-60.
Holmstrom, Bengt. 1982. Moral hazard in teams. Bell Journal of Economics 13: 324±340.
Holmstrom, Bengt & Paul Milgrom. 1994. The firm as an incentive system. American Economic Review 84: 972-991.
Klein, Benjamin, Robert G. Crawford & Armen A. Alchian. 1978. Vertical integration, appropriable rents, and the competitive contracting process. Journal of Law and Economics 21: 297-326.
Knight, Frank. 1921. Risk, uncertainty, and profit. Harper & Row, New York.
Landa, Janet. 1981.Atheory of the ethnically homogeneous middleman group: an institutional alternative to contract law. Journal of Legal Studies 10: 349-362.
Milgrom, Paul & John Roberts. 1992. Economics, organization and management. Prentice Hall, Englewood Cliffs.
Nelson, Richard & Sidney Winter. 1982. An evolutionary theory of economic change. Belknap Press of Harvard University Press, Cambridge.
Schumpeter, Joseph A. 1961. The theory of economic development: an inquiry into profits, capital, credit, interest, and the business cycle. Harvard University Press, Cambridge.
Williamson, Oliver E. 1985. The economic institutions of capitalism: ®rms, markets, and relational contracting. The Free Press, New York.
Winter, Sidney. 1964. Economic `natural selection' and the theory of the firm. Yale Economic Essays 4: 225-272.
Winter, Sidney. 1971. Satisficing, selection, and the innovating remnant. Quarterly Journal of Economics 85: 237-261.
Witt, Ulrich. 1986. Evolution and stability of cooperation without enforceable contracts. Kyklos 39: 245-266.
Witt, Ulrich. 1998. Imagination and leadership-the neglected dimension of an evolutionary theory of the firm. Journal of Economic Behavior and Organization 35: 161-177.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Rose, D.C. Teams, Firms and the Evolution of Profit Seeking Behavior. Journal of Bioeconomics 2, 25–39 (2000). https://doi.org/10.1023/A:1010039609636
Issue Date:
DOI: https://doi.org/10.1023/A:1010039609636