Organizational economics (OE) has long inspired management scholars interested in theorizing about firms, but recent literature questions if OE can help management research and practice deal with the problems of contemporary firms. This paper develops a theory of the firm that takes a fundamentally different approach than traditional OE to answering the classical question ‘Why do firms exist’, and yet continues to build on economic concepts. Rather than seeing the existence of firms as a puzzle in the context of neoclassical theory, their existence is seen as a puzzle in the context of evolutionary theory – defined as a theory that explains human behavior and organization in terms of gene-culture co-evolution. Evolutionary theory suggests that the firm should not primarily be understood as an alternative to the market, but as a contemporary solution to collective action problems that emerge when agents become interdependent. The evolutionary theory of the firm that is developed overturns some of the most basic assumptions in OE, but at the same time offers an integrative approach to solving the main problems that OE has raised, an approach that is consistent with a stakeholder view of the role of firms and their managers in a capitalist system.
