3 Essays on Market, Hierarchy and Ethics

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What is the nature of the firm, and what is its purpose? Economic theories of the firm try to answer the questions of why firms exist and what are their boundaries (Holmstrom and Tirole 1989). However, they are not mere academic inquiries. They also have important implications for corporate governance and managerial practice because they can shape how we view relationships inside the firm and act in light of them. For instance, the economic theory of the firm as a nexus of contracts designed to overcome various forms of agency costs (e.g., Alchian and Demsetz 1972, Jensen and Meckling 1976) has had enormous influence on how we structure corporate governance relationships in both law and practice. Despite their widespread influence, however, many business ethicists have argued that economic theories of the firm fall short of our normative ideals for a variety of reasons. Some have argued that economic theories ignore morally salient features within the firm and thus contribute to unequal relations between employers and employees (Néron 2015). Others are even more skeptical of the very use of economic language to describe the firm. For some, the usage of economic language to describe the firm de-values and de-humanizes stakeholder relationships because it reduces morality within the firm to an "economic morality, " which is solely "the morality of money and power" (Hendry 2001: 225).