Marrying in the Cathedral: A Framework for the Analysis of Corporate Governance

The firm can be seen as a centralization of market transactions and as a decentralization of a public ordering which allows the management of joint liabilities. The paper advances the view that the main reason for the firm’s existence is the unification and the internalization of liabilities. From this perspective, Coase's and Fuller's contributions to the theory of the firm can be married within the architecture of Calabresi's Cathedral. Because of specific (dis)investments, fundamental transformations from competition to managed bilateral monopoly take place either in the public or the private sphere and provide an explanation for the ultimate nature of the firm