ABSTRACT
Firms (or enterprises) are the pre-eminent form of economic organization in both the East and West. Economic theory has recently begun to peer inside the firm, trying to explain why activities are organized within firms—in essence, an exploration of Coase's (1937) query. This analysis has, however, focused the question in the context of market economies. The concern has been with the advantages of firms over market transactions within the context of a conventional market system. This literature has led to much analysis of what determines the boundaries of the firm, and, in particular, on the factors that encourage or discourage integration, merger, and contract (Williamson, 1985; Alchian, 1984; Hart, 1988). The corresponding question—What are the forces that lead to firms, or enterprises, in socialist economies?—is rarely asked.
