Firm Structure in an ACS

What sort of firm structure would exist in an anarcho-capitalist society? This article presents two conjectures.

The first conjecture is a straightforward extrapolation of the principle of decentralization. This principle holds that decisions are made more efficiently by maximally decentralized deciders. The reasoning is simple: The outcome is better tailored to the preference of the audience.

State governments, for example, make better choices than federal governments because they can better tailor to specific preferences, while the federal government must take an inefficient one-size-fits-all approach. Who can decide what to do better with your money than the state government? Ultimately, you are the best decider of how to spend your own money.

Under the principle of decentralization the ultimate firm structure would be the individual.

An alternative view can be derived from Friedman and Cheung.

The Cheung Extension to the Coase Theorem states, “Aside from transaction costs, all institutional forms are capable of achieving the same efficient allocation.” This implies that inclusive of transaction costs, the preferred institution should be the transaction cost minimizing institution. Top-down structures generally have lower transaction costs, but they can face moral hazard in the case of monopoly.

David Friedman said, “I like to say that the best form of government is competitive dictatorship–the way we run restaurants and hotels. The customer has no vote on what’s on the menu, an absolute vote on what restaurant he chooses to eat at.”

Cheung’s extension may agree with David Friedman that competitive dictatorship is the way to go because it might allow for low transaction costs with a check against moral hazard. So perhaps firms in an ACS will organize this way.

Finally, perhaps the two views are not mutually exclusive. It could be that firms prefer a competitive dictatorship while transaction costs are significant, but as transaction costs approach zero they move to single-person firms. Also, a single-person firm could be considered a kind of competitive dictatorship.

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