A Danish citizen, Wernerfelt has degrees from the University of Copenhagen and Harvard. Prior to coming to MIT in 1989, he was employed by the University of Copenhagen, the University of Michigan and Northwestern University. He is married to Harvard Professor Cynthia Montgomery.
Wernerfelt has done foundational and often iconoclastic work in economics, management strategy, and marketing. He is best known for “A Resource-based View of the Firm” (1984), which is one of the most cited papers in the social sciences. Based on the premise that firms are heterogeneous, the article characterizes sustainable differences (resources), suggests that optimal competitive strategies are based on these resources, and describes how current resources can be used to develop new ones.
In the last several years, Wernerfelt has been working on an economic theory of the firm. A fairly comprehensive statement of the theory can be found in “The Comparative Advantages of Firms, Markets, and Contracts: A Unified Theory” (2014). The paper portrays the most efficient labor market mechanism as a function of the advantages of specialization, workers’ costs of switching between entrepreneurs, and the frequency with which entrepreneurs’ needs change. Under the assumptions of the model, there exists three regions in which firms, markets, and sequences of bilateral contracts are weakly more efficient than all other mechanisms in a big class. Echoing the management literature, the firm grows as long as it can use specialized employees to perform the new tasks. The scope of the firm is determined by the point at which this no longer is possible. As part of this stream, Wernerfelt has written several papers on the nature and incidence of bargaining costs. In other works, he has developed implications of the theory to show that the employer should own most of the productive assets, that incentives are weaker inside firms, and that more information is communicated within than between firms.
- “A Resource-based View of the Firm”, Strategic Management Journal 5, no. 2, April–June, pp. 171–180, 1984.
- “Tobin’s q and the Importance of Focus in Firm Performance”, (with Cynthia A. Montgomery), American Economic Review, 78, no. 1, March, pp. 246–50, 1988.
- “Diversification, Ricardian Rents, and Tobin’s q”, (with Cynthia A. Montgomery), RAND Journal of Economics, 19, no. 4, Winter, pp. 623–32, 1988.
- “Umbrella Branding as a Signal of New Product Quality: An Example of Signalling by Posting a Bond”, RAND Journal of Economics, 19, no. 3, Autumn, pp. 458–66, 1988.
- “General Equilibrium with Real Time Search in Labor and Product Markets”, Journal of Political Economy, 96, no. 3, August, pp. 821–31, 1988.
- “On the Nature and Scope of the Firm: An Adjustment-Cost Theory”, Journal of Business, 70, no. 4, October, pp. 489–514, 1997.
- “Why Should the Boss Own the Assets?”, Journal of Economics and Management Strategy, 11, no. 3, Fall, pp. 473–85, 2002.
- “Determinants of Asset Ownership: A Study of the Carpentry Trade” (with Duncan I. Simester), Review of Economics and Statistics, 87, no. 1, February, pp. 50–58, 2005.
- “On the Grouping of Tasks into Firms: Make-or-Buy with Interdependent Parts” (with Sharon Novak), Journal of Economics and Management Strategy, 2012
- “The Comparative Advantages of Firms, Markets, and Contracts: A Unified Theory”, Economica, 2014.
- Birger Wernerfelt’s homepage at MIT
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