Firms vs. Independent Contractors in Market Economy Efficiency

Market Structure and Economic Institutions
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Market Structure and Economic Institutions
Economists conceptualize a firm’s decision to use employees or independent contractors in terms of internal and external markets. A rationale for a firm’s existence is to convert resources into goods and services for the ultimate consumer. Costs are central to the firm’s production operations. Firms minimize production costs via an efficient economic structure, which is achieved through external markets, internal markets, or a combination of both (Diamond, 2016). On the other side, the independent contractors mainly create efficiency in the market economy by maximizing financial benefits and via their preferences for distinct working arrangements (Diamond, 2016). For example, in rideshare services like Uber, the management might decide to hire an employee driver or go for an independent contractor. The independent contractor achieves efficiency by ensuring that the fare share covers operational ...