A Study On The Configuration Mechanism Of Firm Factors: Cognitive Perspective

I developed a production factors allocation theory on the basis of cognitive rationality. Efficient integration of production technology, capital and human resources factor is the key to economic prosperity. If factor owner is completely rational, which is the basic assumption in the Classical economics, they can reach cooperation easily. But if they have different knowledge and view on the firm program, how can they cooperate smoothly and made efficient decisions? Cognitive rationality means people have different view on a project, which is very universal in the world. In order to reach cooperation, people must remove the influence of disagreement.I assume that investors would estimate the value of a firm in the form of distribution function before he could make an investment decision, and then the investors would compute the value of claim rights which are based on the firm. In order to show the relation between the value of claim rights and value of a firm directly, we develop a graphic method. By the graphic method, we analyze how the change of a firm value distribution affects the value of a claim rights. The result is, as the firm value increase, value of all claim rights increase. On the contrary, as the firm risk increase, the value of senior claim rights would decrease, but the value of residual claim rights increase.When investors have different estimation about a firm's value, how could they reach a contract? The equilibrium outcome is, common investors would select senior claim rights, but experts prefer residual claim rights. As there are only a small number of experts, they have strong bargain power, and then the residual claim rights show a higher payback. On the contrary, common investors are majority in a society, they can only get low payback for they competing each other severely, and so senior claim rights always accompanied with low pay back. Experts play a role of increasing social resource allocation efficiency when they endeavor to distinguish true entrepreneur from common people, and high payback is their motivation. Knowledge difference is the reason that workers select senior claim rights and management get residual claim rights. Control rights are associated with residual rights, as an equilibrium outcome, the stockholders get most of the control rights.Chapter V shows, capital structure reflects the relation between investors who have different beliefs, the investor who have more information and knowledge would like to be a stockholder, and others to be debt holders. Capital structure can enhance a firm's value in a public market if there are large amounts of investors with different view about a firm's value distribution. As investors hardly knew more information than management, financing from market is always expensive than from firm, as stockholder asked more payback than debtor, financing by debt instrument is cheaper than equity instrument. But marginal cost of debt would increase as the financial leverage increase. So there is an optimal capital structure.Chapter VI shows, Investors can get more payback if they invest their factors to the best firm. As investors have finite information and finite rationality, they maximize their value by using the financial organization. As different investors need different services, the changing of distribution of different investors determines the evolution of the financial system. As rich people ratio in society increasing, the need for invest bank services increased, and financial market flourished. As majority of the population have few wealth, the commercial bank would be the main financial organizations. We proved our main conclusion by using the data of New York financial industry.The amount and scope of allocating factors is the firm's boundary. In chapter VII, we analyze several cases of vertical integration and horizontal integration. The analysis shows, purpose of integration is to eliminate the cost of hardly coordination, which is the key for the success of value chain. Benefit and cost of coordination is the key for firm boundary.Entrepreneurs are the power of modern economy. In chapter VIII, we argued that firm is the elementary circumstance in which entrepreneur are discovered and brought up. Organization structure is determined by firm blueprint, the structure of reward for employee in different hierarchical level is dissimilar, and bonuses proportion increases along the hierarchy. We argued that one of the elementary functions for financial system is to find out and support potential entrepreneur, enhancing the success rate of new venture equals enhancing the resource allocation efficiency, which would help a society greatly.