On the Predictions of Managerial Theories of the Firm
1976; Wiley; Volume: 24; Issue: 4 Linguagem: Inglês
10.2307/2098158
ISSN1467-6451
Autores Tópico(s)Capital Investment and Risk Analysis
ResumoA SIGNIFICANT proportion of recent work in the theory of the firm has been concerned with the development of managerial theories as alternatives to the traditional profit-maximization models. The outcome of this work has been a plethora of ad hoc and relatively untested models, the relative merits of which are still a matter of considerable debate. In one sense the proliferation of models is inevitable since, once managerial discretion is allowed, economic theory can have little to say about the components and shapes of managerial utility functions. The best that can be done is to hypothesize a particular type of objective function, explore its consequences and, where possible, test the model against the evidence. More questionably, however, in addition to the differences in objective functions the models also utilize a number of different constraint specifications. The variety of constraints used makes comparative evaluation of the models more difficult because the predictions depend heavily upon the particular form of the constraint adopted (Yarrow [io]). For example, the sales maximization assumption in conjunction with a fixed minimum acceptable level of profit implies that, if the constraint is binding, managers will be cost minimizers (Baumol [3]). However, if the constraint (again assumed to be binding) takes the form of a minimum acceptable rate of return on capital, a sales-maximizing firm will operate with a higher ratio of capital to labour, and hence with higher costs, than would a profit maximizer producing the same level of output (Atkinson
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