Austrian Perspectives on Economic Organization
Edited by Nicolai J. Foss and Peter G. Klein
Introduction – Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization
Introduction 4/7/02 1:44 PM Page 1 Introduction - Entrepreneurship and the firm: Austrian perspectives on economic organization Nicolai J. Foss and Peter G. Klein During the last 25 years the theory of the firm, or more broadly, organizational economics, has become one of the hottest areas of applied microeconomics (see Foss, 2000). It has had a strong impact upon business administration, particularly the organization and strategy fields. Though important insights into the economics of organization were offered much earlier by Knight (1921), Coase (1937), Penrose (1959), Richardson (1960), Malmgren (1961) and others, it was only in the 1970s that a systematic body of literature emerged explaining firms’ existence, boundaries, internal organization and financial structure in terms of economic principles. The key insights have also been applied to joint ventures, franchise agreements, long-term supply contracts and a host of other institutional arrangements, so that organizational economics may be described as a general theory of economic organization. Important strands of this literature are the transaction cost theory of the firm (Klein, Crawford and Alchian, 1978; Williamson, 1985) and the property rights approach (Grossman and Hart, 1986; Hart and Moore, 1990). Both focus on the relationship between asset characteristics and efficient ownership structures. Both, and perhaps particularly the property rights approach, are increasingly popular within mainstream microeconomics. Agency theory, which emphasizes the moral-hazard problem associated with delegated authority, has become the standard language of corporate finance (Jensen and Meckling, 1976; Fama and Jensen, 1983). The resource-based or capabilities theory of the firm...