Information and the Production of Management in a Theory of the Firm

I show that the three main contributions to the theory of the business of the last century - those of Cobb and Douglas (1928), Coase (1937), and Lucas (1978) - are actually complementary and can be fitted into a general model of the firm size choice as the solution to a problem of optimal allocation of decision making in the economy. Decisions require information, and the availability and cost of information drives the optimization of firm size by the relevant decision makers - managers and entrepreneurs - pursuing the maximization of profits. Trends in firm size, and their reversals, are shown to depend on the aggregate information/output ratio.