IDEAS home Printed from https://ideas.repec.org/a/inm/ororsc/v7y1996i5p477-501.html
   My bibliography  Save this article

A Resource-Based Theory of the Firm: Knowledge Versus Opportunism

Author

Listed:
  • Kathleen R. Conner

    (University of Michigan Business School, University of Michigan, Ann Arbor, MI 48109)

  • C. K. Prahalad

    (University of Michigan Business School, University of Michigan, Ann Arbor, MI 48109)

Abstract

This paper develops a resource-based---knowledge-based---theory of the firm. Its thesis is that the organizational mode through which individuals cooperate affects the knowledge they apply to business activity. We focus on the polar cases of organization within a firm as compared to market contracting. There will be a difference in the knowledge that is brought to bear, and hence in joint productivity, under the two options. Thus, as compared to opportunism-based, transaction-cost theory, we advance a separate (yet complementary) answer to the question: why do firms exist? Our aim is to develop an empirically relevant and complementary theory of why firms are formed: a theory based on irreducible knowledge differences between individuals rather than the threat of purposeful cheating or withholding of information. We assume limited cognitive abilities on the part of individuals (bounded rationality), and assume that opportunistic behavior will not occur. The latter allows us to determine whether resource-based theory has independent force, as compared to the opportunism-based, transaction-cost approach. The paper predicts choice of organizational mode, identifying whether firm organization or market contracting will result in the more valuable knowledge being applied to business activity. The resource-based predictions of organizational mode are compared and contrasted with corresponding opportunism-based, transaction-cost ones. A principal point is that knowledge-based considerations can outweigh opportunism-related ones. The paper also establishes the relation of a theory of the firm to a theory of performance differences between competing firms.

Suggested Citation

  • Kathleen R. Conner & C. K. Prahalad, 1996. "A Resource-Based Theory of the Firm: Knowledge Versus Opportunism," Organization Science, INFORMS, vol. 7(5), pages 477-501, October.
  • Handle: RePEc:inm:ororsc:v:7:y:1996:i:5:p:477-501
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/orsc.7.5.477
    Download Restriction: no

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ororsc:v:7:y:1996:i:5:p:477-501. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Matthew Walls). General contact details of provider: http://edirc.repec.org/data/inforea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.