O’Brien’s ‘The Evolution of the Theory of the Firm’: a Discussion

Abstract

The argument put forward by O’Brien is that the inductive, empirical strand in the work of Alfred Marshall has been dropped from economic analyses of the firm in favour of an abstract theory of the firm with no empirical content and no empirical referent. Perhaps, the major deficiency of the established theory of the firm is that it ignores the nature of, and requirements for, information available to decision-makers within firms and, in general, it leaves no role for entrepreneurship. O’Brien follows Latsis in preferring the behavioural theories of the firm over the established, neoclassical theory precisely because information (or the lack of it) is important and because it gives pride of place to managerial strengths, weaknesses and ‘the broad faculties of judgement, promptness, resource, carefulness and steadfastness of purpose’ which Marshall suggested were required of the successful entrepreneur. In addition, O’Brien recognizes that the behavioural theories offer far less precise and general predictions than the neo-classical theories.