ABSTRACT
This chapter reviews psychological and economic phenomena that are believed to underlie other determinants of the development of firms and of the accounting function in firms. The concept of bounded rationality was developed by Simon as a response to the classical economics assumption that economic man maximizes utility, if he is a consumer, or profit, if he is an entrepreneur. The principle of bounded rationality has profound implications for the organization and management of firms and for the development of accounting in firms. The tendency of self-interest to extend to a greater entity, through feelings of fraternal loyalty, is an additional factor to be considered. In classical and neoclassical economics, an industry consisted of one to many firms producing the same product(s) from the same factor inputs. Firms in an industry varied in size and in efficiency, but otherwise were similar.
