A capability theory of the firm: an economics and (Strategic) management perspective

The business enterprise is the prime institution in economic development and growth; yet, until recently, mainstream economics has mostly treated firms as homogeneous black boxes managed by untrustworthy agents. Using economic principles, the field of strategic management has developed a nuanced app...

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Bibliographic Details
Published in:New Zealand economic papers 2019-01, Vol.53 (1), p.1-43
Main Author: Teece, David J.
Format: Article
Language:English
Subjects:
Economic development
Strategic management
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Summary:The business enterprise is the prime institution in economic development and growth; yet, until recently, mainstream economics has mostly treated firms as homogeneous black boxes managed by untrustworthy agents. Using economic principles, the field of strategic management has developed a nuanced approach to understanding how firms are created, organized, and grow; how they innovate and compete; and how managers manage. That approach has yielded a theoretical framework known as ‘dynamic capabilities’. Contrasts are drawn between dynamic capabilities and other approaches to the theory of the firm, including transaction cost economics and agency theory. The application of capability theory allows intellectual blinders to be removed and an understanding of differential firm-level resource allocation and performance to emerge. This brings a richer conceptual understanding of the nature of the business enterprise and its management consistent with evolutionary and behavioural economics. Policy insights into governance, inequality, economic development, and the wealth of nations follow.
ISSN:0077-9954
1943-4863
DOI:10.1080/00779954.2017.1371208