Information and Organization ' a New Perspective on the Theory of the Firm '

This work offers a vision of the economy as a system of structured information flow. The structuring is effected by institutions, and in particular by firms, which specialize in processing the information needed to allocate resources properly. Firms are the institutional embodiment of the visions of individual entrepreneurs who believe that they have found a better way of allocating resources. Entrepreneurial vision is only a partial vision, however, in the sense that it does not encompass the entire economy, but only a subset of it. Free market economies encourage the exploitation of such partial visions because they encourage intermediation - it is by mediating between potential buyers and potential sellers that entrepreneurial visions are realized. A legal framework of private property, coupled with a moral framework to control the incidence of cheating, allows very sophisticated structures of information processing to emerge. These structures effect an elaborate division of labour in the dimensions of information and control. Each firm is a small component of the overall structure of information flow.