Entrepreneurship and the Economic Theory of the Firm: Any Gains from Trade?

28 Pages Posted: 27 Sep 2004  

Nicolai J. Foss

Copenhagen Business School - Department of Strategic Management and Globalization

Peter G. Klein

Baylor University, Department of Entrepreneurship; Norwegian School of Economics, Department of Strategy and Management; Mises Institute

Date Written: August 2004

Abstract

Though they developed in isolation, the theory of entrepreneurship and the economic theory of the firm can be usefully integrated. In particular, the concept of entrepreneurship as judgment associated with Knight (1921) and some Austrian school economists aligns naturally with the theory of the firm. Because judgment cannot be purchased on the market, the entrepreneur needs a firm - a set of alienable assets he controls - to carry out his function. We show how this notion of judgment illuminates key themes in the modern theory of the firm (existence, boundaries, and internal organization). In our approach, resource uses are not data, but are created as entrepreneurs envision new ways of using assets to produce final goods. The entrepreneur's problem is aggravated by the fact that capital assets are heterogeneous. Asset ownership allows the entrepreneur to experiment with novel combinations of heterogeneous assets. The boundaries of the firm, as well as aspects of internal organization, may also be understood as responses to entrepreneurial processes of experimentation.

Keywords: Entrepreneurship, heterogeneous assets, judgment, ownership, firm boundaries, internal organization

JEL Classification: B53, D23, L2

Suggested Citation

Foss, Nicolai J. and Klein, Peter G., Entrepreneurship and the Economic Theory of the Firm: Any Gains from Trade? (August 2004). CORI Working Paper No. 2004-09. Available at SSRN: https://ssrn.com/abstract=596226 or http://dx.doi.org/10.2139/ssrn.596226

Nicolai J. Foss

Copenhagen Business School - Department of Strategic Management and Globalization ( email )

Porcelænshaven 24
Frederiksberg, 2000
Denmark
+45 3815 3030 (Phone)
+45 3815 3035 (Fax)

HOME PAGE: http://www.cbs.dk/staff/nicolai_foss

Peter G. Klein (Contact Author)

Baylor University, Department of Entrepreneurship ( email )

Waco, TX 76798
United States
254-710-4903 (Phone)

Norwegian School of Economics, Department of Strategy and Management ( email )

Breiviksveien 40
N-5045 Bergen
Norway

Mises Institute ( email )

Auburn, AL
United States

Paper statistics

Downloads
1,277
Rank
11,540
Abstract Views
7,244