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The Knightian Firm: Uncertainty, Entrepreneurial Judgement and Coordination


  • Yu Tony Fu-Lai

    (The University of New South Wales)


This paper interprets Knights views of the firm from the standpoint of his theory of human agency. Focusing on the coordination perspective, this paper argues that Knightian firms are institutions which deal with intersubjective uncertainty. The fundamental principle underlying an organized activity is the reduction of the uncertainty inherent in judgements and decisions by grouping the decisions of a particular individual and estimating the proportion of successes and failures. Coordinating activities by the use of the firm, shift focus and interest from errors in human agents opinions of things to errors in their opinions of other people. By routinizing some judgements in the form of wage payments, firms allow the coordination of the interests of various parties and thus reduce uncertainty. Furthermore, entrepreneurs conduct economic calculation and bet their judgements on the value of the factors of production they employ. Correct entrepreneurial judgement is the ultimate source of profit. This paper calls for a research agenda on the theory of the firm to incorporate Knights insights.Cet article interprète la vision knightienne de la firme du point de vue de sa théorie de lagent humain. En sintéressant principalement à lenjeu de la coordination, cet article soutient que les entreprises sont, selon Knight, des institutions qui agissent en incertitude intersubjective. Le principe fondamental qui sous-tend une activité organisée est la réduction de lincertitude inhérent aux jugements et décisions par le regroupement des décisions dun individu et lestimation des proportions de succès et déchecs. Les activités de coordination par le biais de lentreprise, déplacent le sujet détude et lintérêt des erreurs dans les opinions quont les agents humains à propos des choses vers leurs erreurs dopinion sur les autres personnes. En rendant routiniers les jugements par la pratique de paiements de salaires, les firmes permettent la coordination des intérêts de parties variées et réduisent ainsi lincertitude. De plus, les entrepreneurs procèdent à des calculs économiques et fondent leurs jugements sur la valeur des facteurs de production quils emploient. Le jugement entrepreneurial correct est lultime source de profit. Cet article plaide en faveur dun programme de recherche en théorie de lentreprise qui incorpore les perspectives ouvertes par Knight.

Suggested Citation

  • Yu Tony Fu-Lai, 2002. "The Knightian Firm: Uncertainty, Entrepreneurial Judgement and Coordination," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 12(4), pages 1-17, December.
  • Handle: RePEc:bpj:jeehcn:v:12:y:2002:i:4:n:1

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    References listed on IDEAS

    1. LeRoy, Stephen F & Singell, Larry D, Jr, 1987. "Knight on Risk and Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 95(2), pages 394-406, April.
    2. Barzel, Yoram, 1987. "Knight's 'Moral Hazard' Theory of Organization," Economic Inquiry, Western Economic Association International, vol. 25(1), pages 117-120, January.
    3. Langlois, Richard N & Cosgel, Metin M, 1993. "Frank Knight on Risk, Uncertainty, and the Firm: A New Interpretation," Economic Inquiry, Western Economic Association International, vol. 31(3), pages 456-465, July.
    4. Gunning, J. Patrick, 1993. "Entrepreneurists and Firmists: Knight vs. The Modern Theory of the Firm," Journal of the History of Economic Thought, Cambridge University Press, vol. 15(01), pages 31-53, March.
    5. Langlois, Richard N & Foss, Nicolai J, 1999. "Capabilities and Governance: The Rebirth of Production in the Theory of Economic Organization," Kyklos, Wiley Blackwell, vol. 52(2), pages 201-218.
    6. Foss, Nicolai J., 1996. "The “Alternative” Theories of Knight and Coase, and the Modern Theory of the Firm," Journal of the History of Economic Thought, Cambridge University Press, vol. 18(01), pages 76-95, March.
    7. Paul L. Robertson & Tony F. Yu, 2001. "Firm strategy, innovation and consumer demand: a market process approach," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 22(4-5), pages 183-199.
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