Entrepreneurship and the Economic Theory of the Firm: Any Gains from Trade?
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
CORI Working Paper No. 2004-09
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.
Number of Pages in PDF File: 28
Keywords: Entrepreneurship, heterogeneous assets, judgment, ownership, firm boundaries, internal organization
JEL Classification: B53, D23, L2
Date posted: September 27, 2004