Mike Munger on the Nature of the Firm


Listen to the EconTalk podcast Mike Munger on the Nature of the Firm and consider these questions.

1. Munger and interviewer Roberts begin by presenting a paradox. What do they mean when they say that firms are essentially anti-market?

2. What does Munger mean by the phrase "the price does the leading"?

3. Munger suggests several challenges that arise from the habit of anthropomorphizing the market. These help to explain people's apparent preference for central planning. What three effects of this anthropomorphizing does he list?

4. How does Munger's invocation of the "Dilbert principle" help to explain the preponderance of (centralized) economic activity within firms?

5. How does the discipline within firms differ from the discipline imposed by the (wider) market?

6. What role do contracts play in the organization of firms? How might salaried employees be considered simpler forms of contract than "outsourced" contracts? (That is, why don't bosses wear bunny slippers?)

7. Munger says, "It's not free to use the price system" in describing the work of Ronald Coase. What does Munger mean by this, and how does it relate to Coase's work?

8. What forms of competition do the "central planners"—the decision makers within firms—regularly respond to? How do these forms of competition restrict the manager's ability to make non-market oriented decisions?

9. How are the challenges to managers' ability to make market-oriented decisions often exacerbated in the non-manufacturing (service) sector if the economy?

10. Munger and Roberts discuss Alchian and Demsetz's characterization of the "monitor" as a specialized function. In this characterization, why must there be monitors before a firm can emerge?