Birger Wernerfelt is an economist and management theorist. He is the JC Penney Professor of Management and head of the PhD Program at the MIT Sloan School of Management.
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 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, he has been working on implications and foundations of the “Adjustment-cost Theory of the Firm” (1997). The theory portrays the employment relationship as an attempt to exploit economies of scale in bargaining costs: The employer and the employee share the benefits of negotiating a single average price (wage) for a sequence of transactions instead of individual prices for each of them. The wedge in costs allows the parties to sustain an implicit contract with at-will options to fire and quit. The original article proposes that the scope of the firm be defined by the employment relationship.
In later works, Wernerfelt has developed 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. 171-80, 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