panel 5 firms and their boundaries

[panel 5] Firms, organizations and their boundaries
Reading and fully understanding is required to answer the 5 questions:
NO OUTSIDE OR SECONDARY SOURCE READING IS ALLOWED, ALL THE ANSWERS AND COMMENTS HAS TO STRICTLY BE BASED ON THE FOLLOWING 3 ASSIGNED READINGS.
IF THE TEACHER HAS A QUESTION OR A CONCERN ABOUT YOUR ANSWER/COMMENT, HE WILL SENT BACK A REPLY AND YOU HAVE TO REPLY BACK TO HIS COMMENT.
19. M July 19 [panel 5] Firms, organizations and their boundaries
R. Coase (1937) “The nature of the firm” Economica 14 (16): 386-405
Herbert Simon (1991) “Organizations and markets” The Journal of Economic Perspectives, 5(2): 25-44
Eileen Appelbaum (2017) “Domestic outsourcing, rent seeking, and increased inequality” Review of Radical Political Economics 49(4): 513-28
Note: British economist Ronald Coase was another influential neoliberal thinker (see the note on the unit 17 readings). Coase’s famous early contribution to institutional economics (assigned here) notices that in market economies, many transactions do not in fact occur via markets but are administered within firms. This raised an interesting theoretical question: if markets are so efficient, why do firms exist at all? Herbert Simon, an interdisciplinary American thinker known for his pioneering work on artificial intelligence, organization theory and psychology as well as economics, considers this question from an overlapping but somewhat broader angle. (Simon, oddly, does not mention the assigned Coase paper, though he does refer to several institutional economists who were strongly influenced by it, and he does refer to the assigned Hayek paper.)
Both the Coase and Simon papers focus on the distinction between market (demand driven) transactions amongindividuals and firms, and administered (command driven) transactions within firms and other organizations. In understanding the difference between market and administered relations, it may help to review Marx (Capital chap. 14, assigned unit 6) on the evolution of carriage and watch manufacturing, and the contrast between the “anarchy in the social division of labour and despotism in that of the workshop”.
Please answer or have some unformal comments/paragraphs (you can say I understood that.. I think that.. I did not understand this specific thing in the reading etc. ) regarding each of the 5 following questions.

question #1: Is there anything in this unit’s readings you found especially confusing, surprising etc. not covered in the topics of the other threads.
Your answer #1:
question #2 What, according to Appelbaum, has been driving recent increases in wage inequality? Discuss her findings on the rationale and effects of domestic outsourcing in light the ideas of Coase and Simon regarding organizations, markets, and the boundaries of the firm. How do the findings she discusses cast doubt on conventional neoclassical economics assumptions about the working of the price mechanism as it applies to labour (see e.g. Piketty and Saez p. 842)?
Your answer #2:

question #3: If firms exist to reduce transaction costs, why do they not grow indefinitely until the economy is one big company? Conversely, if “one big company is inefficient, why are there companies at all? How would Coase go about answering those questions, and what insight might his answer provide regarding when companies will tend to vertically integrate versus when they will tend to outsource? Compare Coase’s explanation for hierarchy with Marglin (who mentions Coase in footnote 46 of the paper assigned unit 13).
Your answer #3:
question #4: Why does Coase reject the idea that firms emerge because of individuals’ differing preference to boss or be bossed? Do you agree (Compare Knight’s view)? How does an employee’s contract with a firm differ from a series of open market transactions among individuals?
Your answer #4:
question #5: Compare and contrast Coase and Simon on theoretical puzzle of why firms (i.e. organizations) exist. What does Robertson’s image “islands of conscious power in this ocean of unconscious co-operation” (quoted p. 388) mean? [It should be clear to you that the “islands of conscious power” in this metaphor are identical to the “green areas” in Simon’s metaphor (p. 27) and the “ocean of unconscious co-operation” corresponds to Simon’s network of red lines. But you need to explain what is “unconscious” about this network of contracts, since people and firms making contracts certainly do so consciously! Why does Simon think that bureaucracies and markets have more in common than Hayek might suggest?
Your answer #5:

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