Entrepreneurshoip and the Economic Theory of the Firm Any Gains from Trade?

Nicolai Foss () and Peter Klein ()

No 04-12, DRUID Working Papers from DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies

Abstract: Although they have developed very much in isolation from each other, we argue the theory of entrepreneurship and the economic theory of the firm are closely related, and each has much to learn from the other. In particular, the notion of entrepreneurship as judgment associated with Frank Knight and some Austrian school economists aligns naturally with the theory of the firm. In this perspective, the entrepreneur needs a firm, that is, a set of alienable assets he controls, to carry out his function. We further show how this notion of judgment adds to the key themes in the modern theory of the firm (i.e., the 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 goods. The entrepreneur’s decision problem is aggravated by the fact that capital assets are heterogeneous. Asset ownership facilitates experimenting entrepreneurship: Acquiring a bundle of property rights is a low cost means of carrying out commercial experimentation. In this approach, the existence of the firm may be understood in terms of limits to the market for judgment relating to novel uses of heterogeneous assets; and the boundaries of the firm, as well as aspects of internal organization, may be understood as being responsive to entrepreneurial processes of experimentation.

Keywords: Entrepreneurship; heterogeneous assets; judgment; ownership; firm boundaries; internal organization (search for similar items in EconPapers)
JEL-codes: B53 D23 L2 (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-cbe, nep-ent, nep-hpe and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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