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The book addresses the entrepreneurial origin of the capitalist firm and its asymmetric contractual relationships between capitalists, workers, managers and entrepreneurs, and explains the origin of the firm by focusing on entrepreneurship. A hidden action model shows how assigning residual claim to entrepreneurs can provide a better overall incentive; a hidden information model demonstrates that capitalists are given priority and have authority to select the management, because capital can signal entrepreneurial ability; and a general equilibrium entrepreneurial model shows that the equilibrium relationships between different members of the firm depend on the joint distribution of ability, wealth and risk attitudes in the population. Overall, the book reveals that the capitalist firm is more efficient, not only because it provides better incentives but also because it ensures that the most entrepreneurial people control the firm.

The Origin of the Capitalist Firm: An Entrepreneurial/Contractual Theory of the Firm

Preface to the second edition.- Preface to the first edition.- Acknowledgements.- Chapter 1 Introduction: Why Does Capital Hire Labour?.- Chapter 2 Marketing, Producing, Monitoring and the Assignment of Principalship.- Chapter 3 Marketing Ability, Personal Wealth and Capital-Hiring-Labour.- Chapter 4 A General Equilibrium Entrepreneurial Model of the Firm.- Chapter 5 Conclusions.- References.- Appendix 1: A Principal-agent Theory of Public Economy and Its Applications to China.- Appendix 2: Decision Rights, Residual Claim and Performance: A Theory of How Chinese State-owned Enterprise Reform Works.