Tweeting but not returning calls: Twitter and the Theory of the Firm

“I see your tweets and status updates, but you haven’t answered my mail”…

Anecdotally I’ve noticed that the rise of social media activity (Facebook updating, Tweeting, etc.) seems to correlate with a drop in direct communication, e.g. email or phone.

You can see how a shift from the latter to the former would make sense, in terms of interpersonal economics. The value of a single relationship must be very high to justify investing effort in a single-person communication, when you can efficiently seek the gains of communicating to an entire social network.

It’s interesting to relate this to what, in economics, is called the “theory of the firm” (cf.
http://en.wikipedia.org/wiki/Theory_of_the_firm). Why do companies or organizations exist, rather than just individuals transacting directly? Why do they exist at certain sizes and structures, and how/why does that change over time?

The firm may be explained as a means to decrease “transaction costs,” reduce cognitive burden, employ team psychology, or cultivate moral reciprocity, etc. It has long been observed than changes in the relative costs of communication may alter the basis for efficient firm size or structure: e.g., email and online project tools may allow projects to be done by freelance teams that formerly were done only within companies.

What strikes me about the shift to social media, though, is that social gratification and broad social status, rather than transaction cost and *local* roles, may be becoming key factors in people’s everyday communication. A co-worker perceived as not part of one’s social world, or a means to social advancement, has decreasing claim on one’s attention, regardless of their “official” or corporate position.

recommended: R. H. Coase 1937 paper “The Nature of the Firm”, an all-time-great paper in social science:
http://www.scribd.com/doc/2530438/COASEThe-Nature-of-the-Firm. http://instruct1.cit.cornell.edu/courses/econ352jpw/readme/coase%20nature%20of%20firm.pdf

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