L. Putterman, MARKETS, HIERARCHIES, AND INFORMATION - ON A PARADOX IN THE ECONOMICSOF ORGANIZATION, Journal of economic behavior & organization, 26(3), 1995, pp. 373-390
The literature on the economics of organization presents the following
paradox. On the one hand, firms are said to be repositories of superi
or information about input characteristics. On the other hand, markets
are said to be superior to hierarchies in coordinating resource alloc
ation because hierarchies are forced to aggregate heterogeneous inputs
into homogeneous categories. This paper suggests reasons for the asso
ciation of firms with refined input information and argues that it is
not their hierarchical features but their provision of an appropriate
framework for rent-sharing that is responsible for this association.