Edith Penrose and Economics

This paper contains a constructive critique of the Penrose picture of firm, comparing it with, on the one hand the Coase-Williamson transactions-cost picture, and on the other with the author's own growth model. It concludes that the Penrose theory does not at the end of the day quantitatively determine the growth rate of the firm and that the transactions-cost story does not at the end of the day determine the size of the firm. The author's own model determine's the growth rate of the firm, but not the size. If married to a stochastic process, the author's model contributes to the determinate, but the quantitative parameters in any one society at any one time, are not. As there is, however, a strong case that the administrative efficiency of firms has no robust relationship to absolute size this indeterminacy may not be economically significant. In other words, the static efficiency of an economy is not sensitive to either the absolute size distribution of firms or to their growth processes. Instead, the key contribution of firms' growth processes to social welfare probably lies mainly in the realm of competitive dynamics. Interfirm competition for growth is also competition to innovation, a la Schumpeter.