ABSTRACT
Holmstrom and Tirole (1989, p. 65) have recently outlined criteria that a theory of the firm must meet, criteria that apply to other types of organizations as well. In their view, such theories need to address two main questions. First, the theory must account for the purpose of organizations, or why they exist at all. Second, the theory must explain the boundaries of the organization-its scale and scope. In Chapters 2 and 3, we develop a dynamic evolutionary model to address these questions.
