This book is an attempt to extend economic theory to the resource allocation choices that are made within a firm or other organization. A number of criteria guided my work. One was that an economic theory of organizations should not depend on restrictive assumptions that employees desire to maximize particular variables such as sales or budgets. Another criterion was that an organization's supplies of its outputs should be derivable from the supply behavior of its individual employees. I also wanted the theory to take account of the investments that employees make in their jobs and to yield implications from this behavior for the organization's internal structure and growth.

My main purpose, however, was to see whether economic theory could provide a wide-ranging set of hypotheses about issues of interest to economists and organization theorists. For example, could economic theory provide hypotheses about the implicit prices that employees attach to resources, employees' supplies of their contributions to outputs, and their demands for information about production possibilities? Could it provide hypotheses about the formal and informal mechanisms by which employees coordinate their activities? Although this book's analysis is only a beginning, I am convinced that economics is a useful tool for analyzing both types of issues. I have also concluded that when economic analysis and organization theory deal with the same issues, their results do not generally conflict. Although economic analysis has a different role in focusing on employees' choices in allocating resources, it does not emerge as a competing approach to organizations, and the many quotations in this book from the literature on organizations suggest that it is often complementary.