Closing the Theory Gap: How the Economic Theory of Property Rights Can Help Bring ‘‘Stakeholders’’ Back into Theories of the Firm

Abstract

So-called stakeholder theories of the firm have faced intellectual challenges since they first emerged in business schools in the 1980s. The two challenges that have been the most difficult to over come are that the various versions of the theory did not have rigorous theoretical underpinnings, and thus seemed very ad hoc in practice, and that the result was an overly broad notion of who the stakeholders are, and how firms needed to take them into account. Nonetheless, management theorists, as well as business people who manage firms have found the simplifying assumptions required for popular economic models of the firm, such as principal-agent theory, to be too unrealistic, and not versatile enough to reflect the actual day-to-day balancing act that corporation managers engage in. In recent years, several new economic theories, including team production theory, capital lock-in theory, and the economic theory of property rights, have emerged that show promise of being able to bridge this gap. This article comments on work by Asher, Mahoney and Mahoney on a property rights foundation for a stakeholder theory of the firm.