A framework for the study of firms as constitutional orders

“A goal is always the goal of somebody, and one can, therefore, speak of an organizational goal only if one is willing to ascribe to the organization an interest of its own, apart from those of its individual members” (Vanberg 1992, p. 227).

For a tempered version of methodological individualism, known as "institutional individualism," see Agassi 1975; Toboso 2001, or Evans 2010—in addition, of course, to Vanberg 1992.

The term "institution" has been used to mean different things, so it is important to define it clearly. The simplest definition is "the rules of the game", stemming from the work of Douglass North (see North 1990; Ostrom 1990), but it is important to note the link between these rules and the patterns of human behaviour that generate them; "the building blocks of institutions are the individual routines, behaviour patterns, rule-guided actions" (Vanberg 1992, p. 7). Institutions are the prescriptions that humans use to organise all forms of repetitive and structured interactions (Ostrom 2005, p. 3). Institutions therefore generate a social environment in which people act; they are a constraint faced by individual preferences, "humanly devised constraints that structure political, economic and social interaction" (North 1990). Many view these rules as being a source of order: institutions are a "connection between rules men obey and the order which is formed as a result" (Hayek 1967, 112). Generally, see North 1990, or Furubotn and Richter 2000.

For a comprehensive review, see Voigt (1997).

See Wenzel (2010b, c) for case studies.

See Kelsen (1942).

Note that we are intentionally using the broader "political good" rather than the narrow and more technical "public good" of Public Choice theory. Whereas a public good is non-rival and non-excludable (and government provides many goods which are not public goods, but could be provided by markets), a political good is any good that the electorate (or whatever groups makes equivalent decisions) wants to be provided by the government. Generally, see Buchanan and Tullock (1962).

Although some might claim—rightfully, we believe—that property rights will cover everything; that is, property of one's person, one's autonomy, one's effects, the fruits of one's labor, etc.

If in a broad sense: a firm's coercion will not be backed by violence, as in the case of a nation-state.

We thank an anonymous reviewer for pointing this out.