Table of Contents

Handbook on the Economics and Theory of the Firm

Handbook on the Economics and Theory of the Firm

Elgar original reference

Edited by Michael Dietrich and Jackie Krafft

This unique Handbook explores both the economics of the firm and the theory of the firm, two areas which are traditionally treated separately in the literature. On the one hand, the former refers to the structure, organization and boundaries of the firm, while the latter is devoted to the analysis of behaviours and strategies in particular market contexts. The novel concept underpinning this authoritative volume is that these two areas closely interact, and that a framework must be articulated in order to illustrate how linkages can be created.

Chapter 19: Nelson and Winter Revisited

Markus Becker and Thorbjorn Knudsen

Subjects: business and management, strategic management, economics and finance, industrial economics, industrial organisation, institutional economics

Extract

* Markus C. Becker and Thorbjørn Knudsen 19.1 INTRODUCTION In this chapter, we consider Richard R. Nelson and Sidney G. Winter’s work within the context of dynamic approaches to the firm. We first review how Nelson and Winter provided the foundation of evolutionary economics and the evolutionary theory of the firm. Then we identify how their work was developed further and finally, point to some avenues for research that emerge on the basis of their work. 19.2 FOUNDATIONS There is a long history of conceiving of economic change as a selection process (Veblen, [1899] 1970; Schumpeter, [1911] 1934; Alchian, 1950),1 but the full treatment of the evolutionary argument that makes it a serious contender to standard theory first came with Nelson and Winter’s (1982) foundational work. Winter’s (1964) critique of Milton Friedman’s (1953) natural selection argument decisively paved the way for modern evolutionary economics. Friedman (ibid.) argued that it does not matter whether the behavior of economic actors is determined by utility maximization or follows other rules. If the firm does not exhibit behavior that in effect is like that of utility maximizers, the firm will perform less well than its competitors. Because of this, it will sooner or later go out of business. Managers would therefore seem to act as if they played out the predictions of textbook economics. For Friedman, this constitutes a process of ‘natural selection’: only those firms that act as if they maximize utility will survive. For a couple of reasons this is not...

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