Edward P. Könings

Introduction How does a firm function in the real world? This question seems so ridiculously easy that it would deserve the description of “ululating obviousness”. However, it is an incredibly complex issue…at least in economics. The usual view of economists, especially microeconomists, is that firms behave in an incredibly rational and orderly way. By this they do not mean that the entrepreneur is a superforecaster with unique abilities to analyze and forecast economic conjunctures, but rather that they behave as if guided by rational formulas. For traditional neoclassical economists, the firm is nothing more than a mere production function. You have well-defined, homogeneous inputs (labor and capital) and outputs (production), and managers manage processes seamlessly. For a firm to function properly, it just needs to allocate its resources efficiently according to optimization calculus and be efficient in the execution of projects. In this extremely “Taylor-Ford” view of things, you just need to ensure that the production belt works and everything will be fine. Obviously, however, the business world is not like this simple panglosian view. Every manager with a minimum of experience knows that the management of a process in an organization involves much more complex aspects than the mere question of optimizing resources. They have to deal with employees who think and produce in different ways, machines that cannot be perfectly allocated between sectors of the same production plant, suppliers that can delay the supply of some input or break agreements, etc. This gulf between theory and practice has always been a problem for economists when dealing with the analysis of agents' behavior in the real world. However, a line of research ended up forming over the years that aimed to fill this abyss and give a better understanding of the phenomenon of inter and intra firm relations from the point o