<P> George Akerlof (1982) develops a gift exchange model of reciprocity, in which employers offer wages unrelated to variations in output and above the market level, and workers have developed a concern for each other's welfare, such that all put in effort above the minimum required, but the more able workers are not rewarded for their extra productivity; again, size here depends not on rationality or efficiency but on social factors . In sum, the limit to the firm's size is given where costs rise to the point where the market can undertake some transactions more efficiently than the firm . </P> <P> Recently, Yochai Benkler further questioned the rigid distinction between firms and markets based on the increasing salience of "commons - based peer production" systems such as open source software (e.g., Linux), Wikipedia, Creative Commons, etc . He put forth this argument in The Wealth of Networks: How Social Production Transforms Markets and Freedom, which was released in 2006 under a Creative Commons share - alike license . </P> <P> In modern contract theory, the "theory of the firm" is often identified with the "property rights approach" that was developed by Sanford J. Grossman, Oliver D. Hart, and John H. Moore . The property rights approach to the theory of the firm is also known as the "Grossman - Hart - Moore theory". In their seminal work, Grossman and Hart (1986), Hart and Moore (1990) and Hart (1995) developed the incomplete contracting paradigm . They argue that if contracts cannot specify what is to be done given every possible contingency, then property rights (and hence firm boundaries) matter . Specifically, consider a seller of an intermediate good and a buyer . Should the seller own the physical assets that are necessary to produce the good (non-integration) or should the buyer be the owner (integration)? After relationship - specific investments have been made, the seller and the buyer bargain . When they are symmetrically informed, they will always agree to collaborate . Yet, the division of the ex post surplus depends on the parties' disagreement payoffs (the payoffs they would get if no ex post agreement were reached), which in turn depend on the ownership structure . Thus, the ownership structure has an influence on the incentives to invest . A central insight of the theory is that the party with the more important investment decision should be the owner . Another prominent conclusion is that joint asset ownership is suboptimal if investments are in human capital . </P> <P> The Grossman - Hart - Moore model has been successfully applied in many contexts, e.g. with regard to privatization . Chiu (1998) and DeMeza and Lockwood (1998) have extended the model by considering different bargaining games that the parties may play ex post (which can explain ownership by the less important investor). Oliver Williamson (2002) has criticized the Grossman - Hart - Moore model because it is focused on ex ante investment incentives, while it neglects ex post inefficiencies . Schmitz (2006) has studied a variant of the Grossman - Hart - Moore model in which a party may have or acquire private information about its disagreement payoff, which can explain ex post inefficiencies and ownership by the less important investor . Several variants of the Grossman - Hart - Moore model such as the one with private information can also explain joint ownership . </P>

Analysis of a firms internal environment identifies the firms