Chapter 3: An Entrepreneurial Theory of the Firm
3. An entrepreneurial theory of the ﬁrm 3.1 INTRODUCTION The integrated social science approach set out in this book is distinguished not only by a focus on the ethical legitimacy of personal objectives, but also by explicit recognition of the costs of information. The costliness of information has major implications for the theory of the ﬁrm, and this chapter spells them out. It is not the handling of material products, but the handling of information, that is the key to understanding the rationale of the ﬁrm, it is argued. The handling of information is important both for the internal organization of the ﬁrm, and for its wider role within the economy. Firms are specialized handlers of information – in particular, they supply market information to consumers, through advertisements and price quotations, in order to simplify the process by which households purchase goods. Market-making ﬁrms intermediate the ﬂow of information between producers and consumers in order to promote trade between them. Market making is particularly important for entrepreneurship, because the identiﬁcation of opportunities to create new markets is a signiﬁcant entrepreneurial act. It requires skilful judgement to identify where a gap caused by a missing market is to be found, and substantial organizational skills are needed to plug such a gap on a recurrent basis. In this way the integrated social science perspective, with its emphasis on information costs, refocuses the theory of the ﬁrm away from the routine management of conventional production and towards entrepreneurial market-making activities instead. The...
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