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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.

Suggested Citation

  • Stephen Dunn, 2000. "Fundamental Uncertainty and the Firm in the Long Run," Review of Political Economy, Taylor & Francis Journals, vol. 12(4), pages 419-433.
  • Handle: RePEc:taf:revpoe:v:12:y:2000:i:4:p:419-433 DOI: 10.1080/09538250050175118
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    1. Paul Davidson, 1983. "Rational Expectations: A Fallacious Foundation for Studying Crucial Decision-Making Processes," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 5(2), pages 182-198, January.
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    13. Brian J. Loasby, 1989. "The Mind and Method of the Economist," Books, Edward Elgar Publishing, number 288, September.
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    Cited by:

    1. Balch, Natalie Audrey, 2014. "Configurations of Management Agreements in Hospitality Industry: Adaptations to Remuneration, Termination and Loss Compensation due to Uncertainty," Journal of Applied Leadership and Management, Hochschule Kempten - University of Applied Sciences, Professional School of Business & Technology, pages 1-22.
    2. Joseph Porac & Zur Shapira, 2001. "On Mind, Environment, and Simon's Scissors of Rational Behavior," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 5(3), pages 206-212, September.
    3. Róbert Veszteg, 2005. "Linking Decisions with Moments," Faculty Working Papers 11/05, School of Economics and Business Administration, University of Navarra.
    4. David Dequech, 2008. "Varieties of uncertainty: a survey of the economic literature," Anais do XXXVI Encontro Nacional de Economia [Proceedings of the 36th Brazilian Economics Meeting] 200807211223070, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    5. 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.
    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. Stephen Dunn, 2006. "Prolegomena to a Post Keynesian health economics," Review of Social Economy, Taylor & Francis Journals, pages 273-299.
    8. repec:rdg:wpaper:em-dp2008-57 is not listed on IDEAS
    9. repec:spr:manint:v:51:y:2011:i:6:d:10.1007_s11575-011-0107-y is not listed on IDEAS
    10. repec:mje:mjejnl:v:11:y:2015:i:1:p:107-116 is not listed on IDEAS
    11. 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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