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Fundamental Uncertainty and the Firm in the Long Run

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  • Stephen Dunn

Abstract

Oliver Williamson claims that bounded rationality and 'behavioural uncertainty' are principal factors influencing market-based transaction costs. Post Keynesian economists typically distinguish between ergodic and non-ergodic processes with the latter providing a technical definition of 'fundamental uncertainty'. Often, the salience of this fundamental uncertainty has been ignored or conflated with bounded rationality and behavioural uncertainty. Consequently, the richness and distinctness of such concepts is much diminished. This paper shows that while bounded rationality is a key behavioural assumption that may account for the existence of high market-based transaction costs in an ergodic world, and thus for the emergence of firms as distinct modes of economic organisation, it may do so only in the short run. I demonstrate, however, that non-ergodicity can be used to explain the existence of transaction costs and thus firms in the long run.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Review of Political Economy.

Volume (Year): 12 (2000)
Issue (Month): 4 ()
Pages: 419-433

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Handle: RePEc:taf:revpoe:v:12:y:2000:i:4:p:419-433

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References

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  1. Steven Tadelis & Oliver E.Williamson, 2012. "Transaction Cost Economics
    [The Handbook of Organizational Economics]
    ," Introductory Chapters, Princeton University Press.
  2. Paul Davidson, 1991. "Is Probability Theory Relevant for Uncertainty? A Post Keynesian Perspective," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 129-143, Winter.
  3. Davidson, Paul, 1988. "A Technical Definition of Uncertainty and the Long-run Non-neutrality of Money," Cambridge Journal of Economics, Oxford University Press, vol. 12(3), pages 329-37, September.
  4. Simon, Herbert A., 1978. "Rational Decision-Making in Business Organizations," Nobel Prize in Economics documents 1978-1, Nobel Prize Committee.
  5. Stephen P. Dunn, 2000. "Wither Post Keynesianism?," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 22(3), pages 343-364, April.
  6. Nicolai J. Foss, 1997. "The Resource-Based Perspective An Assessment and Diagnosis of Problems," DRUID Working Papers 97-1, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  7. Hodgson, Geoffrey M, 1994. "Optimisation and Evolution: Winter's Critique of Friedman Revisited," Cambridge Journal of Economics, Oxford University Press, vol. 18(4), pages 413-30, August.
  8. Dunn, Stephen P, 2001. "Uncertainty, Strategic Decision-Making and the Essence of the Modern Corporation: Extending Cowling and Sugden," Manchester School, University of Manchester, vol. 69(1), pages 31-41, January.
  9. Dahlman, Carl J, 1979. "The Problem of Externality," Journal of Law and Economics, University of Chicago Press, vol. 22(1), pages 141-62, April.
  10. Sent, Esther-Mirjam, 1997. "Sargent versus Simon: Bounded Rationality Unbound," Cambridge Journal of Economics, Oxford University Press, vol. 21(3), pages 323-38, May.
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Cited by:
  1. Joseph Porac & Zur Shapira, 2001. "On Mind, Environment, and Simon's Scissors of Rational Behavior," Journal of Management and Governance, Springer, vol. 5(3), pages 206-212, September.
  2. Reyes Calderon Cuadrado, 2005. "Corruption: A Corporate Perspective," Faculty Working Papers 11/05, School of Economics and Business Administration, University of Navarra.
  3. Dequech, David, 2006. "The new institutional economics and the theory of behaviour under uncertainty," Journal of Economic Behavior & Organization, Elsevier, vol. 59(1), pages 109-131, January.
  4. Stephen Dunn, 2006. "Prolegomena to a Post Keynesian health economics," Review of Social Economy, Taylor & Francis Journals, vol. 64(3), pages 273-299.
  5. repec:rdg:wpaper:em-dp2008-57 is not listed on IDEAS
  6. Yuri Gorbaneff & Sergio Torres & José Fernando Cardona, 2009. "El concepto de incentivo en administración. Una revisión de la literatura," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 11(21), pages 73-91, July-Dece.
  7. Reyes Calderón, 2004. "Fron Neo-classical Entrepreneur to Socio-economic Organization," Faculty Working Papers 01/04, School of Economics and Business Administration, University of Navarra.

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