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Enterprise and Leadership

Studies on Firms, Markets and Networks

Mark Casson

This book offers a broader perspective and important practical insights into economic institutions, focusing on dynamic issues such as entrepreneurship and ethical leadership, which are crucial to institutional growth. Extending the work of his previous books, The Entrepreneur and The Economics of Business Culture, Mark Casson analyses economic institutions from an integrated social science perspective.
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Chapter 3: An Entrepreneurial Theory of the Firm

Mark Casson


3. An entrepreneurial theory of the firm 3.1 INTRODUCTION The integrated social science approach set out in this book is distinguished not only by a focus on the ethical legitimacy of personal objectives, but also by explicit recognition of the costs of information. The costliness of information has major implications for the theory of the firm, and this chapter spells them out. It is not the handling of material products, but the handling of information, that is the key to understanding the rationale of the firm, it is argued. The handling of information is important both for the internal organization of the firm, and for its wider role within the economy. Firms are specialized handlers of information – in particular, they supply market information to consumers, through advertisements and price quotations, in order to simplify the process by which households purchase goods. Market-making firms intermediate the flow of information between producers and consumers in order to promote trade between them. Market making is particularly important for entrepreneurship, because the identification of opportunities to create new markets is a significant entrepreneurial act. It requires skilful judgement to identify where a gap caused by a missing market is to be found, and substantial organizational skills are needed to plug such a gap on a recurrent basis. In this way the integrated social science perspective, with its emphasis on information costs, refocuses the theory of the firm away from the routine management of conventional production and towards entrepreneurial market-making activities instead. The...

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