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A Theory of the Firm: Governance, Residual Claims, and Organizational Forms 1st Edition

3.4 out of 5 stars 5 customer reviews
ISBN-13: 978-0674002951
ISBN-10: 0674002954
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Editorial Reviews


"The book provides the fundamental building blocks for agency theory and discusses a wide variety of topics, including the nature of man, the theory of the firm, specific and general knowledge, organizational structure, executive compensation, and performance measurement. These essays, which span the past 25 years, illustrate how Jensen's views have evolved and expanded over time...Jensen's integrated theory is a noble attempt to combine economic analysis of markets and behavioral organization theorists' understanding of the internal aspects of organizations." --This text refers to the Paperback edition.

About the Author

Michael C. Jensen is Jesse Isidor Straus Professor of Business Administration Emeritus, Harvard Business School.

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Product Details

  • Hardcover: 320 pages
  • Publisher: Harvard University Press; 1st edition (December 15, 2001)
  • Language: English
  • ISBN-10: 0674002954
  • ISBN-13: 978-0674002951
  • Product Dimensions: 9.6 x 6.4 x 1.1 inches
  • Shipping Weight: 1.3 pounds
  • Average Customer Review: 3.4 out of 5 stars  See all reviews (5 customer reviews)
  • Amazon Best Sellers Rank: #3,516,245 in Books (See Top 100 in Books)

Customer Reviews

Top Customer Reviews

By Phillip Phan on August 22, 2001
Format: Hardcover
This book is a collection of eight previously published papers by Prof. Michael Jensen (and co-authors) of the Harvard Business School in a stream of research dealing with agency theoretic formulations of the theory of the firm.
It is aimed specifically at research scholars in financial economics, strategic management, organizational theory, and public policy. Because it is a collection, the papers tend to vary in style and technicality from impassioned advocacy (chapter 3) to general narrative (chapter 2) to formal mathematical modeling (chapter 6). Deliberately little was done to reedit the papers for flow and while this tends to give the reader mental whiplash as he tries to adjust between chapters, it maintains the integrity of the original thoughts that went into the original papers. It makes a good first book for Ph.D. students and scholars new to the field needing a quick summary of a half-century of theoretical development; and because only they would have the tenacity to plow through the formal models.
The ideas in the book are not new to scholars familiar to the field, but they do represent the theoretical cutting edge, which attests to the robustness of Prof. Jensen's ideas (chapter four was first published in 1976) or to the more cynical - a lack of theoretical advancement. Because they are brought together in one place, the book neatly presents the historical development and theoretical arguments in a way that sorting through a bunch of papers cannot.
The main point the book makes is that one cannot build a complete theory of the firm, typically encountered in traditional production models, without special consideration for the governance mechanisms that ensure the efficient deployment of resources and distribution of wealth.
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Format: Hardcover
Michael Jensen is one of the founders of the agency cost economics branch of the New Institutional Economics. "A Theory of the Firm" collects eight articles by Jensen and various co-authors that, collectively, represent the seminal body of work in this field. (I wonder how his various co-authors felt about being left of the spine of this book?) While his contributions to agency cost theory are the work for which he is best known, Jensen also figures prominently in the intellectual history of the nexus of contracts theory of the firm, as several of the articles collected here demonstrate.
U.S. public corporations are characterized by a separation of ownership and control: the firm's nominal owners, the shareholders, exercise virtually no control over either day to day operations or long-term policy. Instead, control is vested in the hands of professional managers, who typically own only a small portion of the firm's shares. The separation of ownership and control characteristic of U.S. corporations has costs: "The separation of ownership from control produces a condition where the interests of owner and of ultimate manager may, and often do, diverge . . . ." (Berle and Means, 1932). Modern scholars refer to the consequences of these divergences as agency costs, following Jensen and Meckling (1976), which are conventionally defined as the sum of the monitoring and bonding costs, plus any residual loss, incurred to prevent shirking by agents. In turn, shirking is conventionally defined to include as any action by a member of a production team that diverges from the interests of the team as a whole. As such, shirking includes not only culpable cheating, but also negligence, oversight, incapacity, and even honest mistakes.
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By A Customer on November 17, 2002
Format: Hardcover
Elegant and well elaborated, Jensen presents the classic economic theory of the firm. The one shortcoming is that the activities of the firm in an international and social context are not touched on. I recommend this book with another that elaborates on the theory of the firm in social and political environments, such as Usha Haley's "Multinational Corporations in Political Environments".
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Format: Paperback
The book is a collection of articles published at different times with different co-authors, but nonetheless forms a coherent whole. If you are interested in academic analysis of why business organizations are structured as they are, this is the book for you. But you may not agree with Professor Jensen's viewpoint. He has a strong ideological bias, which occasionally leads him into error. For example, on page 27 he claims that bypassing "the inefficient work rules and high wages imposed by unions" will "increase efficiency and thereby contribute to excess capacity." Yet there is no reason to think lower wages will increase efficiency. If anything, lower wages could reduce efficiency, as the best workers leave for better paying jobs. A more pervasive problem is his claim that corporations are best regarded as "a nexus...of...contracts among disparate individuals." His theory fits the tradition of Locke, etc., but disregards important noncontractual aspects of the corporation. The focus on contract cannot shed light on the corporation's relationships to government authorities, since such relationships are not based on any contract. The contractual view also ignores the corporation's role as the owner of property, such as a patent or a factory or timberland. Professor's Jensen's ideology, however, does not make him an apologist for the managerial class. A major theme of the book is the conflict of interest between managers and stockholders. Professor Jensen seems to be an honest scholar: his footnotes sometimes show that what he says in the text isn't the full story. An interesting book, sparkling with ideas--but read with skepticism.
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