The firm as a socialization device

Ramalingam, Abhijit and Rauh, Michael (2010) The firm as a socialization device. Management Science, 56 (12). pp. 2191-2206.

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Why do firms exist? What is their function? What do managers do? What is the role, if any, of social motivation in the market? In this paper, we address these questions with a new theory of the firm, which unites some major themes in management, principal-agent theory, and economic sociology. We show that although the market is a superior incentive mechanism, the firm has a comparative advantage with respect to social motivation. We then show that the market is efficient in environments that favor the provision of incentives, such as when subjective risk is low and performance is easy to measure. The firm is efficient in other environments where incentives are costly and/or ineffective. We compare our model and results with the views of Durkheim (Durkheim, E. 1984. The Division of Labor in Society. Free Press, New York) and Granovetter (Granovetter, M. 1985. Economic action and social structure: The problem of embeddedness. Amer. J. Sociol. 91(3) 481–510).

Item Type: Article
Uncontrolled Keywords: embeddedness,endogenous preferences,institutions,multitasking,norms,principal-agent theory,theory of the firm,trust
Faculty \ School: Faculty of Social Sciences > School of Economics
Depositing User: Gina Neff
Date Deposited: 13 Jan 2011 11:08
Last Modified: 15 Jun 2023 15:30
DOI: 10.1287/mnsc.1100.1239


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