A theory of the firm is developed that enables the entrepreneurial function to be reintroduced into the theory of the firm. The conclusion reached is that once the firm is viewed as an institutional structure and not merely a production function, innovation can be explained as an endogenous process within the boundaries of existing firms. It therefore becomes possible to view institutional (in addition to product and process) innovation as a source of economic growth. Copyright 1991 by Scottish Economic Society.
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