ABSTRACT
Modern research on the theory of the firm is described as belonging to one of two perspectives. The first, which is usually referred to as ‘contractual’, stems from the work of Coase (1937), Alchian and Demsetz (1972), Williamson (1975, 1985) and Hart (1995), and it views the firm as a set of optimal contracts that bind together the assets it employs. The second perspective comprises the ‘capabilities’ theories of the firm that stem from the work of Penrose (1959), Richardson (1972) and Nelson and Winter (1982). These theories view the firm as a bundle of capabilities, which are largely tacit and shared by the human assets that constitute it. The two perspectives place emphasis on different aspects of the firm as an organization. Contractual theories address questions such as the existence, boundaries and internal organization of firms, while the capabilities perspective adopts a developmental approach that puts emphasis on how economic organization changes through time.1
