INTERNATIONAL-TRADE AND THE INTERNAL ORGANIZATION OF FIRMS - AN EVOLUTIONARY APPROACH

Masahiko Aoki and others have distinguished two alternative modes for a firm's internal organization. We argue that the profitability of eac h mode depends on the distribution of firms across modes and on the ge neral economic environment. We characterize the evolutionary equilibri a in both a parametric and a general model, and argue that corner equi libria predominate. We analyze the effects of trade between the two co untries in (a) outputs only and (b) inputs (factors) as well as output s. Our most striking conclusion is that in case (b) a less efficient m ode can displace a more efficient mode when trade barriers are suffici ently low.