While economic analysis has for the most part been satisfied with the theory of the production function serving as the theory of the firm, three notable exceptions (Marshall 1920; Alchian 1950; and Winter 1964, 1971) have attempted to create meaningful theories of the firm utilizing biological analogies. Why such analogies have been used sparingly may be the result of a general trend away from biology in the development of modern economic theory (Schabas, Chapter 12, this volume) or may be more specifically related to the observation (made by Rosenberg, Chapter 15, this volume) that when biology is applied to the theory of the firm, much of what results seems to be more of interest to organizational theorists than to economists. The lack of interest and/or limited appeal of the biological metaphor raises the question of why it may be of value for economics in general, and the theory of the firm more specifically, to appropriate biological analogies. This chapter attempts to answer this question.

The first step toward providing an answer will be to investigate some of the potential reasons why economists might find biological analogies attractive. The appropriation of biology for use in economics is not however without some cost, and therefore the second step will be to identify some of the challenges involved in translating biological concepts for use in the theory of the firm. For example, in what ways is a firm similar to a biological organism?