THEORY OF THE FIRM AND STRUCTURE OF RESIDUAL RIGHTS

This paper develops a general equilibrium model with consumer-producers, economies of specialization, and transaction costs to investigate the emergence of firms from the division of labor and the function of a structure of residual rights. It is shown that the institution of the firm can be used to get intangible intellectual property involved in the division of labor while avoiding its direct pricing and marketing, so that the division of labor can be promoted by saving on transaction costs.