4R. R. Nelson affords. Indeed both authors see the firms as to put forth a strong general theoretical challenge some extent molding their own environment as, to the effect that innovation ought to be the for example, in calling forth significant public center of economic analysis. But it is hard to investments in education in the U.S. and Ger- overestimate the degree to which economists many continue to see the central economic problem as Chandler is an historian by training. Porter's that of meeting preferences as well as possible formal training is in economics, but his career given resources, and prevailing technologies and has been at a Business School and his research institutions. This perspective implies a rather focus has been on management. It should be limited view of what firms are about recognized that the orientation of these authors Second, partly reflecting this general orien- to 'firms' is quite different than that in most of tation, but not the only possible formulation of economics. Indeed it is apparent that for both firms'decision processes consistent authors the center of attention is the firms, and economists became wedded to a theory of firm the central questions are how are they doing behavior that posited that firms face given and and 'what makes them strong or weak. They known choice sets(constrained for example by are drawn to wider economic mechanisms and available technologies) and have no difficulty in institutions in the search for answers to these choosing the action within those sets that is the questions. Now firm performance clearly is best for them, given their objectives(generally related to broader economic performance, but I assumed to be as much profit as possible). Thus have argued above they are not the same thing. the 'economic problemis basically about getting Since neither Chandler nor Porter presents a private incentives right, not about identifying the coherent statement of the economy wide problem, best things to be doing, which is assumed to be their analyses stop considerably short of providing no problem an answer that would satisfy economists to the The perspective on the economic problem and question of why do firms differ and how does the theory of firm behavior described above do matte not invite a careful inquiry into what goes on in firms. However, the tradition in economics of treating firms as'black boxes, was not inevitable FIRMS IN NEOCLASSICAL ECONOMIC either. The fact that until recently at least, this THEORY has been the norm deserves recognition in its own right To get at that question from an economists The overall result is a view that what firms do perspective, one needs to start with a broad is determined by the conditions they face, and Inderstanding of what economic activity is all (possibly) by certain unique attributes(say a about, and what constitutes good economic choice location, or a proprietary technology )they performance or poor. Neoclassical theory, which possess. Firms facing different markets will vides the current conventional wisdom on behave and perform differently, but if the market these matters for economists, militates against conditions were reversed so would be firm paying attention to firm differences as an behaviors. Where the theory admits product portant variable affecting economic perform- differentiation, different firms will produce differ ent products but, in the theoretical literature The first is the perception of what economic any firm can choose any niche. Thus there all about. Since the formulation of are firm differ general equilibrium theory almost a century ago, autonomous quality to them the focus has largely been on how well an The theoretical orientation in economics thus and technologies. This position is far from cretionary firm differences matter. Of course universal. Empirically oriented economists have economists studying empirical or policy questions been interested in things like technical change have a proclivity to wander away from the tethers and, recently, there has been a rash of work on of theory when the facts of the matter compel economic institutions and how and why these them to do so. Thus in doing industry studies, change over time. Schumpeter some time ago economists often have been forced to recognize