Emergence of firms in $(d+1)$-dimensional work space

TL;DR

This paper models the emergence and evolution of firms using a simple dynamical system based on bounded rationality and reinforcement learning, focusing on long-term relationships and network formation.

Contribution

It introduces a minimal model capturing the dynamics of firm formation and relationship stability, emphasizing the role of local interactions and learning processes.

Findings

The model explains metastability of employment relations.

Long-term relationships reduce transaction costs.

Network dynamics lead to stable firm-like structures.

Abstract

Standard micro-economics concentrate on the description of markets but is seldom interested in production. Several economists discussed the concept of a firm, as opposed to an open labour market where entrepreneurs would recrute workers on the occasion of each business opportunity. Coase \cite{Coase} is one of them, who explains the existence of firms as institution because they reduce the transaction costs with respect to an open labour market. Whatever the rationale proposed by economists to account for the existence of firms, their perspective is based on efficiency and cost analysis. Little attention is paid to the dynamics of emergence and evolution of firms. The aim of the present manuscript is to check the global dynamical properties of a very simple model based on bounded rationality and reinforcement learning. Workers and managers are localised on a lattice and they choose collaborators on the basis of the success of previous work relations. The choice algorithm is largely inspired rom the observation and modeling of long term customer/sellers relationships observed on perishable goods markets discussed in Weisbuch etal\cite{Weisbuch} and Nadal etal\cite{Nadal}. The model presented here is in no way an alternative to Coase. We describe the build-up of long term relationships which do reduce transaction costs, and we deduce the dynamical properties of networks built from our simple assumptions. In conclusion, the present model explains the metastability of employment relations in the firm, but something has to be added to it to explain the more efficient workload repartition observed in real firms.