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1. What is the importance for the theory of the firm of transaction costs, teamwork and the divorce between ownership and management? K&R 198, 220 Workshop 4 PLAN: Introduction Explain relevance to theory of the firm including definitions of Transaction costs, teamwork, divorce between ownership and control. What can firm do to counteract problems arising involving these factors. Conclusion P198-199 Transaction Costs: cost of conducting an economic exchange between two parties. Transaction costs have two important implications for the theory of the firm; firstly the theory of transaction costs predicts that economic exchange will tend to be organized in ways that minimize the costs of those exchanges (explaining the very existence of the firm), secondly transaction costs play an considerable role in limiting the size of firms. Coase wrote in 1937 that Economic exchange will tend to be organised in ways that minimize the cost of exchanges. One way to do this is to offer general contracts. If firms do not...

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