Hayekian Knowledge Problems in Organizational Theory

41 Pages Posted: 8 Apr 2008

See all articles by Kirsten Foss

Kirsten Foss

Copenhagen Business School - Department of Industrial Economics & Strategy (IVS)

Nicolai J. Foss

Copenhagen Business School - Department of Strategy and Innovation

Date Written: 2008

Abstract

In his seminal 1945 essay Hayek argued that the dispersed nature of much commercially relevant knowledge places strong constraints on the feasibility of centralized allocation and coordination mechanisms, but that there remains a problem of making efficient use of such knowledge (the first Hayekian knowledge problem). He realized that firms, because they make use of authority, are also challenged by dispersed knowledge, and his emphasis on delegation as a response to dispersed knowledge may lead to the prediction that (large) firms shouldn't exist. Yet (large) firms obviously do exist (the second Hayekian knowledge problem). Recently, many management and organizational scholars have echoed Hayek's argument that centralized coordination mechanisms, such as authority, may fail in the presence of dispersed knowledge. We examine these modern arguments and argue that they rest on shaky foundations: dispersed knowledge is a less strong constraint on authority than is often thought. We examine the wider implications of this for knowledge-based arguments in management and organizational theory, and call for more research into the micro-foundations of such arguments.

Keywords: Austrian economics, coordination, dispersed knowledge, authority, planning

Suggested Citation

Foss, Kirsten and Foss, Nicolai J., Hayekian Knowledge Problems in Organizational Theory (2008). Available at SSRN: https://ssrn.com/abstract=1117875 or http://dx.doi.org/10.2139/ssrn.1117875

Kirsten Foss (Contact Author)

Copenhagen Business School - Department of Industrial Economics & Strategy (IVS) ( email )

Howitzvej 60, 6
Frederiksberg, DK-2000
Denmark

Nicolai J. Foss

Copenhagen Business School - Department of Strategy and Innovation ( email )

Kilen
Frederiksberg, 2000
Denmark

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