The “Alternative” Theories of Knight and Coase, and the Modern Theory of the Firm

1996 ◽  
Vol 18 (1) ◽  
pp. 76-95 ◽  
Author(s):  
Nicolai J. Foss
Keyword(s):  
Theory Of The Firm ◽  
Fiftieth Anniversary ◽  
Perfect Competition ◽  
Economic Organization ◽  
Modern Theory ◽  
Risk And Uncertainty ◽  
Risk Uncertainty ◽  
Alternative Theories

In his contribution to the 1987 conference that celebrated the fiftieth anniversary of Ronald Coase's “The Nature of the Firm” (1937), Harold Demsetz noted that from the birth of modern economics to 1970, “only two works seem to have been written about the theory of the firm that have altered the perspectives of the profession: Knight's Risk, Uncertainty, and Profit (1921) and Coase's ‘The Nature of the Firm’” (Demsetz 1993, in Williamson and Winter 1993, p. 159). It is easy to feel uncomfortable with this observation. First, Coase's article was ignored for decades. Second, Knight's book did not receive much attention because of its theory of economic organization, but because of its statement of the theory of perfect competition (Stigler 1957; Machovec 1995), its distinction between risk and uncertainty, and its theory of profits (see, e.g., Boulding 1942 and Papandreou 1952).'

Entrepreneurists and Firmists: Knight vs. The Modern Theory of the Firm

1993 ◽  
Vol 15 (1) ◽  
pp. 31-53 ◽  
Author(s):  
J. Patrick Gunning
Keyword(s):  
Special Interest ◽  
Adam Smith ◽  
Agency Problem ◽  
Theory Of The Firm ◽  
Modern Theory ◽  
Enterprise System ◽  
Free Enterprise ◽  
Economic Relationship ◽  
Risk Uncertainty ◽  
Economic Transaction

Frank Knight was a “grand theorist.” Like other grand theorists from Adam Smith to Friedrich A. Hayek, his interests extended beyond economics. In economics, his major writings focused on the most general problems of the discipline, his goal being to show the merits and limitations of the free enterprise system. He took a special interest in intersubjective uncertainty and the accompanying problem of agency. To benefit from an economic transaction an individual must rely on others (agents, broadly speaking) to perform actions even though he or she cannot be certain that the others will decide to perform the actions. Agency, in the broadest sense, is present in all relationships that are properly defined as economic. Knight apparently recognized that both the classical liberal's trust in free enterprise and the interventionist's distrust stem from their different views of the agency problem and of how best to solve it. Accordingly, he made the problem a centerpiece of his investigation of free enterprise in his celebrated Risk, Uncertainty and Profit (1921). The agency problem also plays an important role in the modern, or new institutionalist, theory of the firm. The new institutionalists aim to show that some observable economic relationship, rule or procedure in an organization, most notably a Coasean firm, is a result of the efforts of individuals to deal with the agency problem.

scholarly journals Introduction to the special issue on the Centenary of Frank H. Knight's Risk, Uncertainty, and Profit

2021 ◽  
pp. 1-5
Author(s):  
Per L. Bylund
Keyword(s):  
Theory Of The Firm ◽  
Special Issue ◽  
Risk And Uncertainty ◽  
Novel Theory ◽  
Business Profit ◽  
Magnum Opus ◽  
Risk Uncertainty

Abstract Frank H. Knight's magnum opus Risk, Uncertainty, and Profit, published in 1921, is widely recognized for introducing and establishing the distinction between risk and uncertainty. It is also known for developing a novel theory of the firm and business profit based on entrepreneurial judgment. However, the work's relevance for institutionalism has only rarely been addressed or even acknowledged. This introduction to the special issue organized to celebrate the centenary of Knight's tome briefly summarizes the work's institutionalist implications and the articles that comprise the special issue.

scholarly journals The Theory of the Firm as Governance Structure: From Choice to Contract

2002 ◽  
Vol 16 (3) ◽  
pp. 171-195 ◽  
Author(s):  
Oliver E Williamson
Keyword(s):  
Organization Theory ◽  
Theory Of The Firm ◽  
Governance Structure ◽  
Economic Organization ◽  
Long Time ◽  
Choice Approach

The propositions that organization matters and that it is susceptible to analysis were long greeted by skepticism by economists. One reason why this message took a long time to register is that it is much easier to say that organization matters than it is to show how and why. The prevalence of the science of choice approach to economics has also been an obstacle. As developed herein, the lessons of organization theory for economics are both different and more consequential when examined through the lens of contract. This paper examines economic organization from a science of contract perspective, with special emphasis on the theory of the firm.

A Historical Comparison of Resource-Based Theory and Five Schools of Thought Within Industrial Organization Economics: Do We Have a New Theory of the Firm?

1991 ◽  
Vol 17 (1) ◽  
pp. 121-154 ◽  
Author(s):  
Kathleen R. Conner
Keyword(s):  
Industrial Organization ◽  
Major Element ◽  
Theory Of The Firm ◽  
Perfect Competition ◽  
Historical Evolution ◽  
Transaction Cost Theory ◽  
Strategy Research ◽  
Resource Based View ◽  
Historical Comparison ◽  
Resource Based Theory

A resource-based approach to strategic management focuses on costly-to-copy attributes of the firm as sources of economic rents and, therefore, as the fundamental drivers of performance and competitive advantage. Interest presently exists in whether explicit acknowledgement of the resource-based view may form the kernel of a unifying paradigm for strategy research. This article addresses the degree to which a resource-based view represents a fundamentally different approach from theories used in industrial organization (10) economics. The central thesis is that, put informal terms, the resource-based approach is reaching for a theory of the firm. To determine its distinctiveness in comparison to IO, therefore, an appropriate comparison is with other theories of the firm developed within that tradition. Section I summarizes and analyzes five theories that have been significant in the historical evolution of IO. These are neoclassical theory's perfect competition model, Bain-type IO, the Schumpeterian and Chicago responses, and transaction cost theory. The first part of Section II analyzes the resource-based approach in terms of similarities to and differencesfrom these IO-related theories. The conclusion is that resource-based theory both incorporates and rejects at least one major element from each of them; thus resource-based theory reflects a strong IO heritage, but at the same time incorporates fundamental differences from any one of these theories. The second part of Section II analyzes resource-based theory as a new theory of the firm.

The Resource-Based Theory of the Firm

2011 ◽  
pp. 129-148 ◽  
Author(s):  
Kalle Kangas
Keyword(s):  
Theory Of The Firm ◽  
Digital Economy ◽  
Information Resources ◽  
Solid Base ◽  
Modern Theory ◽  
Resource Based View ◽  
Resources Management ◽  
Information Resources Management ◽  
Theoretical Foundations ◽  
Resource Based Theory

This chapter explores the theoretical foundations of the digital economy. In doing that, it first discusses micro-economics – actually the eight main theories of the 20th century firm. A reasoning, through a literary review, is presented, which shows that no other theory of firm explored provides a suitable background for the digital economy, except the resource-based view of the firm. Starting from this finding, the paper further explores the strategic formulations based on the resource-based view of the firm, as well as its implications to organizational learning and competitive advantage created by information resources management. The conclusions suggest that the resource-based view of the firm, and its implications to strategic management and information resources management, form a solid base for further studies on the foundations of the digital economy. Therefore, the paper suggests that studies of the digital economy could be more fruitful, when studied under the premises of the resource-based theory, than any other modern theory of the firm.

Frank Knight and the cognitive diversity of entrepreneurship

2021 ◽  
pp. 1-18
Author(s):  
Malte F. Dold ◽  
Mario J. Rizzo
Keyword(s):  
Theory Of The Firm ◽  
Analytical Framework ◽  
Venture Capitalists ◽  
Cognitive Diversity ◽  
Modern Idea ◽  
Risk Uncertainty ◽  
Additional Value ◽  
Selection Of

Abstract In Risk, Uncertainty and Profit (RUP), Knight (1921) develops a theory of the firm that stresses the important role of entrepreneurial judgment for a firm's success. For Knight, entrepreneurial judgment is first and foremost the selection of ‘proxy entrepreneurs’ who are capable of making good judgments under uncertainty. In this sense, entrepreneurial judgment is essentially ‘judgment of judgment’. An overlooked implication of Knight's position is the fact that it leads to an endorsement of distributed entrepreneurship and responsibility. We deem this a very modern idea that challenges a completely hierarchical understanding of the firm. Knight himself does not thoroughly examine the institutional implications of the analytical framework he sets up in RUP. In this paper, we summarize the ‘philosophical vision’ of Knight's framework and illustrate his rationale behind the distribution of entrepreneurship. We conclude the paper with a discussion of potential institutional implications by referring to the danger of monocultures, the additional value created by cognitively diverse teams, and the effectiveness of venture capitalists.

scholarly journals PERAN STRATEGIS INTELLECTUAL CAPITAL SEBAGAI VARIABEL ANTARA PENGARUH FINANCIAL CAPITAL TERHADAP KINERJA PERUSAHAAN

2018 ◽  
Vol 15 (2) ◽  
pp. 194-209
Author(s):  
Moh. Nasih
Keyword(s):  
Financial Performance ◽  
Intellectual Capital ◽  
Structural Equation ◽  
Theory Of The Firm ◽  
Financial Capital ◽  
Superior Performance ◽  
Equation Modeling ◽  
Modern Theory ◽  
The Relationship

According to the classical theory of the firm, a firm can create value and earn maximum profits through financial capital. This view is valid in a stable environment. In recent decades, environmental conditions getting really erratic. Therefore, the role of financial capital in creating value and profitability is questionable. According to the modern theory of enterprise, intellectual capital is more dominant than the financial capital. This study aimed to examine the relationship/influence of financial capital and intellectual capital, directly or indirectly, to the company's financial performance among banking companies in Indonesia. Data obtained from banks, which in a single entity. Data that qualify the requirements is processed by using Structural Equation Modeling (SEM). The analysis showed that the financial capital (assets) indirectly influential, positive, and has significant impact on the firm's financial performance through intellectual capital and non-financial performance. Indirect effect on the financial performance of assets through intellectual capital is estimated at 0.166 and through non-financial performance to financial performance estimated at 0,600 (ROA) and at 0.617 (NI). Thus it is true that intellectual capital is a strategic asset that mediates the creation of superior performance of banking companies in Indonesia.

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