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Fundamental Uncertainty and the Firm in the Long Run

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Author Info
Stephen P. 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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Article provided by Taylor and Francis Journals in its journal Review of Political Economy.

Volume (Year): 12 (2000)
Issue (Month): 4 (October)
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 listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Williamson, Oliver E., 1989. "Transaction cost economics," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 3, pages 135-182 Elsevier. [Downloadable!] (restricted)
  2. Davidson, Paul, 1991. "Is Probability Theory Relevant for Uncertainty? A Post Keynesian Perspective," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 129-43, Winter. [Downloadable!] (restricted)
  3. Simon, Herbert A, 1979. "Rational Decision Making in Business Organizations," American Economic Review, American Economic Association, vol. 69(4), pages 493-513, September. [Downloadable!] (restricted)
  4. Sent, Esther-Mirjam, 1997. "Sargent versus Simon: Bounded Rationality Unbound," Cambridge Journal of Economics, Oxford University Press, vol. 21(3), pages 323-38, May.
  5. Langlois, Richard N., 1983. "Internal Organization In a Dynamic Context: Some Theoretical Considerations," Working Papers 83-04, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
  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. [Downloadable!]
  7. 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.
  8. Dahlman, Carl J, 1979. "The Problem of Externality," Journal of Law & Economics, University of Chicago Press, vol. 22(1), pages 141-62, April.
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Nigel Wadeson, 2008. "Project Work Uncertainties and the Boundaries of the Firm," Economics & Management Discussion Papers em-dp2008-57, Henley Business School, Reading University. [Downloadable!]
  2. Reyes Calderon Cuadrado, 2005. "Corruption: A Corporate Perspective," Faculty Working Papers 11/05, School of Economics and Business Administration, University of Navarra. [Downloadable!]
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