The Symmetry Principle

This chapter has two broad objectives. First, I develop a pair of heuristic tools, the symmetry and replication principles, which are helpful in probing hypotheses about LMFs. The rest of the chapter surveys strategies that could be used to explain the facts about LMFs. These include theoretical frameworks that rely primarily on efficiency concepts (transaction-cost economics, contract theory) and others that assume optimizing behavior but leave more room for inefficiency (adverse selection, repeated games). I also consider two approaches not derived from microeconomic theory, those invoking history and culture. My goal is not to evaluate the empirical merits of any theory, but to present a theoretical menu from which choices can later be made.

A useful source of intellectual discipline in generating explanations for the rarity of workers' control runs as follows. If there were competitive markets for all relevant goods and services, firms would not exist in a meaningful sense because all production activities could be coordinated through market contracting rather than authority. In this environment, each agent would maximize the profit obtained by transactions in input and output markets because each would want to have the maximum possible income available for consumption purposes. There would be no debate about control rights or the objectives of firms.