The Modern Firm, Corporate Governance and Investment
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The Modern Firm, Corporate Governance and Investment

Edited by Per-Olof Bjuggren and Dennis C. Mueller

This book explores the revolutionary development of the theory of the firm over the past 35 years. Despite rapid progress in the field, new developments in the microeconomic and industrial organization literature have been relatively scant. This book attempts to redress the balance by providing a comprehensive overview of the theory of the firm before moving on to examine firms and the organization of their economic activities. The contributors also investigate the impact of ownership structure and board composition on firm performance and study how the institutional framework of an economy affects investment decisions.
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Chapter 6: Competence and Learning in the Experimentally Organized Economy

Gunnar Eliasson and Åsa Eliasson


1 Gunnar Eliasson and Åsa Eliasson INFORMATIONAL ASSUMPTIONS FOR A THEORY OF INDUSTRIAL DEVELOPMENT 1. The single most important empirical assumption in economic theory concerns the totality of all possible states the economy can be in. This universal state space of the model of the economy, or what we call the business opportunities space (Eliasson, 1990a) sets the limits both of what actors can do, and of how informed about their environment they can be. We introduce the knowledge based economy (Eliasson 1987b, 1990a, b; OECD, 1996), which establishes as a necessary assumption an economic opportunities space of immense complexity that is theoretically impossible to comprehend more than fractionally from any one place. Each actor understands only a miniscule fraction of the total opportunities space. Together, however, the understanding of all actors in the markets is much larger, but still only encompasses a fraction of the whole, and the tacitness of their knowledge or competence effectively restricts expansion of that understanding through collective coordination. Attempts to speed up exploration of the opportunities space through rivalrous competition in markets encounter rapidly escalating information and communications (transactions) costs in the short run. Such exploration, however, offers opportunities for learning and increases the number of creative encounters such that the opportunities space expands, and probably faster than it is being explored. Hence, we may all be growing increasingly ignorant of what is theoretically possible to know about. This information paradox, or what we will call the Särimner effect,2 is a fundamental,...

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