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 11: Rents and Resources: A Market Process Perspective

Peter Lewin and Steven E. Phelan

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

Extract

CHAPTER 11 4/7/02 1:49 PM Page 1 11. Rent and resources: a market process perspective Peter Lewin and Steven E. Phelan1 RESOURCE-BASED THEORY AND RENTS The new resource-based theory (RBT) of the firm relies, in many ways, on economic foundations. It takes as its point of departure the neoclassical microeconomic model of perfect competition. In perfect competition there are no ‘profits’2 and all firms are identical. The RBT explains why firms differ that is, what aspects of the perfect competition model most plausibly do not apply. Different firms possess different (heterogeneous) resources and are (somehow) able to maintain those valuable differences (for example, Barney, 1991; Foss, 1997a). As a result, according to the RBT, successful firms are able to earn ‘rents’. This concept of ‘rents’ is also derived from economic foundations, in this case deeper foundations than the model of perfect competition, namely the theory of rent as developed by David Ricardo (Ricardo [1821], 1973) and subsequently modified by Alfred Marshall (Marshall [1920], 1961).3 In both of these cases, the perfect competition model and the theory of rent, it is possible to feel that the RBT has borrowed too uncritically. In the case of rent theory in particular, RBT has complicated its own framework by reproducing (or inventing) needless distinctions and overlooking others. This chapter is an examination and reformulation of the concept of rent and a suggestion for incorporating the reformulated framework into the RBT. This reworked theory of rent derives from an economic tradition that is...

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