The main testable-in-principle predictions are that economic profits causally drive hiring in large orgs (as opposed to hiring causing economic profits), and that orgs tend to expand until all the economic profit is eaten up (as opposed to expanding until marginal cost of a hire exceeds marginal revenue/savings from a hire). Actually checking those hypotheses statistically would be a pretty involved project; subtle details of accounting tend to end up relevant to this sort of thing, and the causality checks are nontrivial. But it’s the sort of thing economists have tools to test.
Actually checking those hypotheses statistically would be a pretty involved project; subtle details of accounting tend to end up relevant to this sort of thing, and the causality checks are nontrivial. But it’s the sort of thing economists have tools to test.
Yes, it would be a challenge statistically, and measurment a challenge as well. It’s not really about subtle accounting details but the economic costs—opportunity costs, subjective costs, expected costs. Additionally, economics has been trying to explain the existance, size and nature of the firm at least a century but still has not come to a firm conclusion.
I suspect a big part of the problem here is that a firm is a rather complex “thing” and and it’s not clear any single explanation that is logically consistent internally can explain the phenomena as the whole does not necessarily hold to some easily understood collection of parts. For instance, at a certain size do we think of a firm as a market particiant maximizing profits (or some internal dominance metric), a hybrid part market participant and part internal market or perhaps no longs even a market participant even when providing goods/services to some external market but really functioning as an alternative market form for those acting within the that large firm? If you accept the view that explaining the firm requires explanations at each of those levels and believe such a theory exists, then you also have to believe that some unified theory of micro and macro economics also exist as it’s basically the same problem.
So I’m not sure it’s correct to say “economist have tools to test” in the sense of and they will come up with clear and uncontested answers rather than perhaps have shed a bit of light on something but have not yet identified the elephant they are touching.
How would you falsify this model?
The main testable-in-principle predictions are that economic profits causally drive hiring in large orgs (as opposed to hiring causing economic profits), and that orgs tend to expand until all the economic profit is eaten up (as opposed to expanding until marginal cost of a hire exceeds marginal revenue/savings from a hire). Actually checking those hypotheses statistically would be a pretty involved project; subtle details of accounting tend to end up relevant to this sort of thing, and the causality checks are nontrivial. But it’s the sort of thing economists have tools to test.
Yes, it would be a challenge statistically, and measurment a challenge as well. It’s not really about subtle accounting details but the economic costs—opportunity costs, subjective costs, expected costs. Additionally, economics has been trying to explain the existance, size and nature of the firm at least a century but still has not come to a firm conclusion.
I suspect a big part of the problem here is that a firm is a rather complex “thing” and and it’s not clear any single explanation that is logically consistent internally can explain the phenomena as the whole does not necessarily hold to some easily understood collection of parts. For instance, at a certain size do we think of a firm as a market particiant maximizing profits (or some internal dominance metric), a hybrid part market participant and part internal market or perhaps no longs even a market participant even when providing goods/services to some external market but really functioning as an alternative market form for those acting within the that large firm? If you accept the view that explaining the firm requires explanations at each of those levels and believe such a theory exists, then you also have to believe that some unified theory of micro and macro economics also exist as it’s basically the same problem.
So I’m not sure it’s correct to say “economist have tools to test” in the sense of and they will come up with clear and uncontested answers rather than perhaps have shed a bit of light on something but have not yet identified the elephant they are touching.