Entrepreneurship and the Firm

Entrepreneurship and the Firm

Austrian Perspectives on Economic Organization

Edited by Nicolai J. Foss and Peter G. Klein

While characteristically ‘Austrian’ themes such as entrepreneurship, economic calculation, tacit knowledge and the temporal structure of capital are clearly relevant to the business firm, Austrian economists have said relatively little about management, organization, and strategy. This innovative book features 12 chapters that all seek to advance the understanding of these issues by drawing on Austrian ideas.

Chapter 4: Knowledge: A Challenge for the Austrian Theory of the Firm

Pierre Garrouste

Subjects: business and management, entrepreneurship, economics and finance, economics of entrepreneurship, industrial organisation


1 Pierre Garrouste Until recently, no economist in the Austrian tradition had even begun to develop an Austrian theory of the firm (Loasby, 1989). This has now changed; a number of authors such as Foss (1994), Klein (1996), Iaonnides (1998), Dulbecco and Garrouste (1999), and Lewin and Phelan (2000) have contributed to an elaboration of such a theory. There has even been a dramatic growth in the number of works concerning this topic.2 For all their differences, these publications share the idea that knowledge and its distribution are, or should be, central elements in any Austrian theory of the firm. Nevertheless, not all the implications of this important idea have been addressed. For one thing, the fact that knowledge is not only distributed but also evolving has been relatively neglected, in the Austrian tradition in general and in the Austrian analysis of the firm. More specifically, an Austrian theory of the firm could improve its treatment of learning by systematically developing connections between knowledge and its distribution on the one hand and time on the other. This chapter argues that the unequal distribution of knowledge has two implications for the Austrian theory of the firm. First, the theory must investigate the growth of knowledge (learning processes) within the firm, and second, it must address the assignment of decision rights over the distribution of knowledge (the terminology is from Jensen and Meckling, 1992). Finally, because those two elements are interdependent, the theory must address their possible relations. The first section explains...

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