behavioural theories of the firm

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Theories of firm behaviour based on considering the objectives of individuals and groups within firms. In contrast to orthodox models of the firm based on the assumption of profit maximization, with some allowance for risk aversion, behavioural models consider the motives of managers and other groups within the firm. In small firms a preference for an easy life, or desire to remain one's own master, may limit ambition. In larger firms, pursuit of managerial perquisites, or empire-building based on love of power or prestige, may lead to maximization of turnover rather than profits. It is also argued that lack of information leads firms into choices based on satisficing.

Subjects: Economics.

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