Handbook of Economic Organization
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Handbook of Economic Organization

Integrating Economic and Organization Theory

Edited by Anna Grandori

This comprehensive and groundbreaking Handbook integrates economic and organization theories to help elucidate the design and evolution of economic organization. Economic organization is regarded both as a subject of inquiry and as an emerging disciplinary field in its own right, integrating insights from economics, organization theory, strategy and management, economic sociology and congnitive psychology. The contributors, who share this integrated approach, are distinguished scholars at the productive peak in their fields. Each original, state-of-the art chapter not only addresses foundational issues, but also identifies key issues for future research.
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Chapter 22: Entrepreneurship, entrepreneurial governance and economic organization

Nicolai J. Foss and Peter G. Klein

Extract

We propose an integration of the theory of entrepreneurship and the economics of organization. We start with the concept of entrepreneurship as judgment associated with Knight (1921) and some Austrian school economists, which aligns naturally with the theory of the firm. Judgment is embodied in resource ownership and, while resources can be traded in markets, judgment itself cannot. Hence the entrepreneur needs a firm – a set of alienable assets he controls – to carry out his resource-allocation function. We show how the notion of judgment illuminates key themes in the modern theory of the firm (existence, boundaries and internal organization). In our approach, uses of resources are not data, but are created as entrepreneurs envision and try out new ways of using assets to produce final goods. The entrepreneur’s problem is aggravated by the fact that capital assets are heterogeneous. Asset ownership allows the entrepreneur to experiment with novel combinations of heterogeneous assets. The boundaries of the firm, as well as aspects of internal organization, may also be understood as responses to entrepreneurial processes of experimentation. In particular, we offer the notion of ‘proxy entrepreneurship’, the delegation to employees of the right to act in an entrepreneurial manner. In effect, we build a theory of entrepreneurial governance.

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