Skip to main content Accessibility help

How does opportunistic behavior influence firm size? An evolutionary approach to organizational behavior



This paper relates firm size and opportunism by showing that, given certain behavioural dispositions of humans, the size of a profit-maximizing firm can be determined by cognitive aspects underlying firm-internal cultural transmission processes. We argue that what firms do better than markets – besides economizing on transaction costs – is to establish a cooperative regime among its employees that keeps in check opportunism. A model depicts the outstanding role of the entrepreneur or business leader in firm-internal socialization processes and the evolution of corporate cultures. We show that high opportunism-related costs are a reason for keeping firms’ size small.


Corresponding author


Hide All
Arrow, K. J. (1974), The Limits of Organization, New York: W. W. Norton & Company.
Alchian, A. A. and Demsetz, H. (1972), ‘Production, Information Costs, and Economic Organization’, American Economic Review, 62 (5): 777795.
Anderson, J. R. (2000), Cognitive Psychology and Its Implications, New York: Worth.
Aronson, E., Wilson, T. D., and Akert, R. M. (2002), Social Psychology, Upper Saddle River, NJ: Prentice-Hall.
Audretsch, D. B. (1997), ‘Technological Regimes, Industrial Demography and the Evolution of Industrial Structures’, Industrial and Corporate Change, 6 (1): 4982.
Bakker, A. B. and Schaufeli, W. B. (2008), ‘Positive Organizational Behavior: Engaged Employees in Flourishing Organizations’, Journal of Organizational Behavior, 29 (2): 147154.
Baron, J. N and Hannan, M. T. (2002), ‘Organizational Blueprints for Success in High-Tech Start-Ups’, California Management Review, 44 (3): 836.
Berson, Y., Oreg, S., and Dvir, T. (2008), ‘CEO Values, Organizational Culture and Firm Outcomes’, Journal of Organizational Behavior, 29 (5): 615633.
Bolton, G. E. and Ockenfels, A. (2000), ‘ERC: A Theory of Equity, Reciprocity, and Competition’, American Economic Review, 90 (1): 166193.
Bowles, S. and Gintis, H. (2004), ‘Persistent Parochialism: Trust and Exclusion in Ethnic Networks’, Journal of Economic Behavior and Organization, 55 (1): 123.
Boyd, R. and Richerson, P. J. (1980), ‘Sociobiology, Culture and Economic Theory’, Journal of Economic Behavior and Organization, 1 (2): 97121.
Boyd, R. and Richerson, P. J. (1982), ‘Cultural Transmission and the Evolution of Cooperative Behavior’, Human Ecology, 10 (3): 325351.
Boyd, R. and Richerson, P. J. (1985), Culture and the Evolutionary Process, Chicago: University of Chicago Press.
Boyd, R. and Richerson, P. J. (1989), ‘Social Learning as an Adaptation’, Lectures on Mathematics in the Life Sciences, 20: 120.
Boyd, R. and Richerson, P. J. (1993), ‘Rationality, Imitation, and Tradition’, Day, R. H. and Chen, P. (eds.), Nonlinear Dynamics and Evolutionary Economics, New York: Oxford University Press, pp. 131149.
Boyd, R. and Richerson, P. J. (2002), ‘Group Beneficial Norms Can Spread Rapidly in a Structured Population’, Journal of Theoretical Biology, 215 (3): 287296.
Carter, R. and Hodgson, G. M. (2006), ‘The Impact of Empirical Tests of Transaction Cost Economics on the Debate on the Nature of the Firm’, Strategic Management Journal, 27 (5): 461476.
Churchill, N. C. and Lewis, V. L. (1983), ‘The Five Stages of Small Business Growth’, Harvard Business Review, 61 (3): 3050.
Coase, R. H. (1937), ‘The Nature of the Firm’, Economica, 4 (16): 386405.
Coase, R. H. (1988), The Firm, the Market, and the Law, Chicago: University of Chicago Press.
Coase, R. H. (1992), ‘The Institutional Structure of Production’, American Economic Review, 82 (4): 713719.
Conner, K. R. and Prahalad, C. K. (1996), ‘A Resource-based Theory of the Firm: Knowledge Versus Opportunism’, Organization Science, 7 (5): 477501.
Cordes, C., Richerson, P. J., McElreath, R., and Strimling, P. (2008), ‘A Naturalistic Approach to the Theory of the Firm; The Role of Cooperation and Cultural Evolution’, Journal of Economic Behavior and Organization, 68 (1): 125139.
Cyert, R. M. and March, J. G. (1992), A Behavioral Theory of the Firm, Cambridge, MA: Blackwell.
Dosi, G. and Marengo, L. (2007), ‘On the Evolutionary and Behavioral Theories of Organizations: A Tentative Roadmap’, Organization Science, 18 (3): 491502.
Enzle, M. E. and Anderson, S. C. (1993), ‘Surveillant Intentions and Intrinsic Motivation’, Journal of Personality and Social Psychology, 64 (2): 257266.
Eshel, I., Samuelson, L., and Shaked, A. (1998), ‘Altruists, Egoists, and Hooligans in a Local Interaction Model’, American Economic Review, 88 (1): 157179.
Fehr, E. and Gächter, S. (2000), ‘Cooperation and Punishment in Public Goods Experiments’, American Economic Review, 90 (4): 980994.
Field, A. J. (2007), ‘Beyond Foraging: Behavioral Science and the Future of Institutional Economics’, Journal of Institutional Economics, 3 (3): 265291.
Foss, N. J. (1996), ‘Knowledge-based Approaches to the Theory of the Firm: Some Critical Comments’, Organization Science, 7 (5): 470476.
Foss, N. J. (2000), ‘The Theory of the Firm: An Introduction to Themes and Contributions’, Foss, N. J. (ed.), The Theory of the Firm: Critical Perspectives on Business and Management, London: Routledge, pp. xvlxi.
Frey, B. S. and Jegen, R. (2001), ‘Motivation Crowding Theory: A Survey of Empirical Evidence’, Journal of Economic Surveys, 15 (5): 589611.
Ghoshal, S. and Moran, P. (1996), ‘Bad for Practice: A Critique of the Transaction Cost Theory’, Academy of Management Review, 21 (1): 1347.
Gindis, D. (2009), ‘From Fictions and Aggregates to Real Entities in the Theory of the Firm’, Journal of Institutional Economics, 5 (1): 2546.
Greiner, L. E. (1998), ‘Evolution and Revolution as Organizations Grow’, Harvard Business Review, 76 (3): 5567.
Güth, W. and van Damme, E. (1998), ‘Information, Strategic Behavior, and Fairness in Ultimatum Bargaining: An Experimental Study’, Journal of Mathematical Psychology, 42 (2–3): 227247.
Harrington, J. E. Jr. (1999), ‘Rigidity of Social Systems’, Journal of Political Economy, 107 (1): 4064.
Hart, O. (1995), Firms, Contracts, and Financial Structure, Oxford: Clarendon Press.
Haslam, A. S., Platow, M. J., Turner, J. C., Reynolds, K. J., McGarty, C., Oakes, P. J., Johnson, S., Ryan, M. K. and Veenstra, K. (2001), ‘Social Identity and the Romance of Leadership: The Importance of being Seen to be ‘Doing it for Us’, Group Processes and Intergroup Relations, 4 (3): 191205.
Henrich, J. (2004), ‘Cultural Group Selection, Coevolutionary Processes and Large-scale Cooperation’, Journal of Economic Behavior and Organization, 53 (1): 335.
Henrich, J. and Gil-White, F. J. (2001), ‘The Evolution of Prestige: Freely Conferred Deference as a Mechanism for Enhancing the Benefits of Cultural Transmission’, Evolution and Human Behavior, 22 (3): 165196.
Hill, C. W. (1990), ‘Cooperation, Opportunism, and the Invisible Hand: Implications for Transaction Cost Theory’, Academy of Management Review, 15 (3): 500513.
Hodgson, G. M. (2004), ‘Opportunism is Not the Only Reason Why Firms Exist: Why an Explanatory Emphasis on Opportunism May Mislead Management Strategy’, Industrial and Corporate Change, 13 (2): 401418.
Hodgson, G. M. and Knudsen, T. (2007), ‘Firm-Specific Learning and the Nature of the Firm: Why Transaction Costs May Provide an Incomplete Explanation’, Revue Economique, 58 (2): 331350.
Holmstrom, B. R. and Milgrom, P. (1994), ‘The Firm as an Incentive System’, American Economic Review, 84 (4): 972991.
Holmstrom, B. R. and Tirole, J. (1989), ‘The Theory of the Firm’, Schmalensee, R. and Willig, R. D. (eds.), Handbook of Industrial Organization, Volume 1, Amsterdam: North-Holland, pp. 61133.
Kameda, T. and Diasuke, N. (2002), ‘Cost–benefit Analysis of Social/Cultural Learning in a Nonstationary Uncertain Environment: An Evolutionary Simulation and an Experiment with Human Subjects’, Evolution and Human Behavior, 23 (5): 373393.
Kogut, B. and Zander, U. (1996), ‘What Firms Do? Coordination, Identity, and Learning’, Organization Science, 7 (5): 502518.
Kogut, B. and Zander, U. (1992), ‘Knowledge of the Firm, Combinative Capabilities, and the Replication of Technology’, Organization Science, 3 (3): 383397.
Kreps, D. M. (1990), ‘Corporate Culture and Economic Theory’, Alt, J. L. and Shepsle, K. (eds.), Perspectives on Positive Political Economy, Cambrdige: Cambridge University Press, pp. 90143.
Labov, W. (1994), Principles of Linguistic Change: Internal Factors, Oxford: Blackwell.
Labov, W. (2001), Principles of Linguistic Change: Social Factors, Oxford: Blackwell.
Langlois, R. N. (1998), ‘Personal Capitalism as Charismatic Authority: The Organizational Economics of a Weberian Concept’, Industrial and Corporate Change, 7 (1): 195213.
Langlois, R. N. (2003), ‘Cognitive Comparative Advantage and the Organization of Work: Lessons from Herbert Simon's Vision of the Future’, Journal of Economic Psychology, 24 (2): 167187.
Lumsden, C. J. and Wilson, E. O. (1981), Genes, Mind, and Culture, Cambridge, MA: Harvard University Press.
Madhok, A. (1996), ‘Crossroads – The Organization of Economic Activity: Transaction Costs, Firm Capabilities, and the Nature of Governance’, Organization Science, 7 (5): 577590.
Nelson, R. R. and Winter, S. G. (1982), An Evolutionary Theory of Economic Change, Cambridge, MA: Belknap Press of Harvard University Press.
Nicholson, N. (1997), ‘Evolutionary Psychology: Toward a New View of Human Nature and Organizational Society’, Human Relations, 50 (9): 10531078.
Nicholson, N. and White, R. (2006), ‘Darwinism – A New Paradigm for Organizational Behavior?’, Journal of Organizational Behavior, 27 (2): 111119.
Pagano, U. (1999), ‘Is Power an Economic Good?’, Bowles, S., Franzini, M., and Pagano, U. (eds.), The Politics and Economics of Power, London: Routledge, pp. 6384.
Parkhe, A. (1993), ‘Strategic Alliance Structuring: A Game Theoretic and Transaction Cost Examination of Interfirm Cooperation’, Academy of Management Journal, 36 (4): 794829.
Penrose, E. T. (1959), The Theory of the Growth of the Firm, London: Basil Blackwell.
Reinstaller, A. (2007), ‘The Division of Labor in the Firm: Agency, Near-Decomposability and the Babbage Principle’, Journal of Institutional Economics, 3 (3): 293322.
Richerson, P. J. and Boyd, R. (2001), ‘The Evolution of Subjective Commitment to Groups: A Tribal Instincts Theory’, in Nesse, R. M. (ed.), Evolution and the Capacity for Commitment, New York: Russell Sage Foundation, pp. 186220.
Richerson, P. J. and Boyd, R. (2005), Not by Genes Alone: How Culture Transformed Human Evolution, Chicago: The University of Chicago Press.
Richerson, P. J., Collins, D., and Genet, R. M. (2006), ‘Why Managers Need an Evolutionary Theory of Organizations’, Strategic Organization, 4 (2): 201211.
Rogers, E. M. (1983), Diffusion of Innovations, New York: Free Press.
Rubin, P. H. (1982), ‘Evolved Ethics and Efficient Ethics’, Journal of Economic Behavior and Organization, 3 (2–3): 161174.
Salancik, G. R. and Pfeffer, J. (1978), ‘A Social Information Processing Approach to Job Attitudes and Task Design’, Administrative Science Quarterly, 23 (2): 224253.
Schilling, M. A. and Steensma, K. H. (2002), ‘Disentangling the Theories of Firm Boundaries: A Path Model and Empirical Test’, Organization Science, 13 (4): 387401.
Simon, H. A. (1955), ‘A Behavioral Model of Rational Choice’, Quarterly Journal of Economics, 69 (1): 99118.
Tajfel, H. (1982), ‘Social Psychology of Intergroup Relations’, Annual Review of Psychology, 33: 139.
Tomasello, M. (1996), ‘Do Apes Ape?’, in Heyes, C. M. and Galef, B. G. Jr. (eds.), Social Learning in Animals: The Roots of Culture, San Diego: Academic Press, pp. 319346.
Williamson, O. E. (1971), ‘The Vertical Integration of Production: Market Failure Considerations’, American Economic Review, 61 (2): 112123.
Williamson, O. E. (1975), Markets and Hierarchies: Analysis and Antitrust Implications, New York: Free Press.
Williamson, O. E. (1979), ‘Transaction-Cost Economics: The Governance of Contractual Relations’, Journal of Law and Economics, 22 (2): 233261.
Williamson, O. E. (1981), ‘The Modern Corporation: Origins, Evolution, Attributes’, Journal of Economic Literature, 19 (4): 15371568.
Williamson, O. E. (1985), The Economic Institutions of Capitalism, New York: Free Press.
Williamson, O. E. (1999), ‘Strategy Research: Governance and Competence Perspectives’, Strategic Management Journal, 20 (12): 10871108.
Williamson, O. E. (2002), ‘The Theory of the Firm as Governance Structure: From Choice to Contract’, Journal of Economic Perspectives, 16 (3): 171195.
Witt, U. (1998), ‘Imagination and Leadership – The Neglected Dimension of an Evolutionary Theory of the Firm’, Journal of Economic Behavior and Organization, 35 (2): 161177.
Witt, U. (2000), ‘Changing Cognitive Frames – Changing Organizational Forms: An Entrepreneurial Theory of Organizational Development’, Industrial and Corporate Change, 9 (4): 733755.
Witt, U. (2007), ‘Firms as Realizations of Entrepreneurial Visions’, Journal of Management Studies, 44 (7): 11251140.
Zenger, T. R. and Hesterly, W. S. (1997), ‘The Disaggregation of Corporations: Selective Intervention, High-powered Incentives, and Molecular Units’, Organization Science, 8 (3): 209222.


Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed