Identity and the theory of the firm

The concept of identity is increasingly entering economists’ discourse on a wide range of topics. This chapter details the historical development of the theory of social identity outside of economics, touching on key economically relevant insights and results. It then describes how identity has been modeled by economists, outlining two key strands of the literature: a preference-based model of identity due to Akerlof and Kranton and a beliefs-based model developed by BA©nabou and Tirole. Next, it describes one way in which identity can be applied to the field of industrial organization in particular: it may help to shed light on fundamental aspects of the classical theory of the firm. In the concluding section, opportunities for future research are highlighted.