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 7: Entrepreneurship, Contracts and the Corporate Firm: Austrian Insights on the Contractual Nature of Business Organization

Stavros Ioannides

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


Stavros Ioannides Modern research on the firm is usually described as belonging to one of two perspectives. The first stems from the work of Coase (1937), Alchian and Demsetz (1972), Williamson (1975, 1985) and Hart (1995), and is usually described as ‘contractual’. These theorists view the firm as a set of optimal contracts that bind together the assets it employs, primarily by aligning the incentives under which they operate. The second perspective comprises the ‘capabilities’ theories of the firm that stem from the work of Penrose (1959), Richardson (1972) and Nelson and Winter (1982). These theories view the firm as a bundle of capabilities, which are largely tacit and shared by the human assets that constitute it. Austrian economics has not yet made a significant mark in this field, although this is beginning to change, as the present volume suggests.1 The affinity of Austrian ideas - such as tacit knowledge, coordination and evolutionary processes - with those of the capabilities perspective is beyond doubt. However, in this chapter we attempt to take the opposite path: we intend to explore whether the concept of entrepreneurship can account for the arrangements that correspond to three contractual forms through which business organizations acquire their resources: (1) spot contracts, (2) longterm contracts, and (3) equity holding. More specifically, we will seek to bring out the entrepreneurial element in each of these contractual arrangements and to show the way in which it affects organizational form. There are several reasons why this line of analysis is...

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