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Entrepreneurshoip and the Economic Theory of the Firm Any Gains from Trade?

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  • Nicolai J. Foss
  • Peter G. Klein

Abstract

Although they have developed very much in isolation from each other, we argue the theory of entrepreneurship and the economic theory of the firm are closely related, and each has much to learn from the other. In particular, the notion of entrepreneurship as judgment associated with Frank Knight and some Austrian school economists aligns naturally with the theory of the firm. In this perspective, the entrepreneur needs a firm, that is, a set of alienable assets he controls, to carry out his function. We further show how this notion of judgment adds to the key themes in the modern theory of the firm (i.e., the existence, boundaries, and internal organization). In our approach, resource uses are not data, but are created as entrepreneurs envision new ways of using assets to produce goods. The entrepreneur’s decision problem is aggravated by the fact that capital assets are heterogeneous. Asset ownership facilitates experimenting entrepreneurship: Acquiring a bundle of property rights is a low cost means of carrying out commercial experimentation. In this approach, the existence of the firm may be understood in terms of limits to the market for judgment relating to novel uses of heterogeneous assets; and the boundaries of the firm, as well as aspects of internal organization, may be understood as being responsive to entrepreneurial processes of experimentation.

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  • Nicolai J. Foss & Peter G. Klein, 2004. "Entrepreneurshoip and the Economic Theory of the Firm Any Gains from Trade?," DRUID Working Papers 04-12, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  • Handle: RePEc:aal:abbswp:04-12
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    References listed on IDEAS

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    Cited by:

    1. Ho-Don Yan, 2008. "Taiwan's Yacht Industry: A Tale of Two Entrepreneurial Firms," Global Economic Review, Taylor & Francis Journals, vol. 37(4), pages 469-486.
    2. Ulrich Witt, 2007. "Firms as Realizations of Entrepreneurial Visions," Journal of Management Studies, Wiley Blackwell, vol. 44(7), pages 1125-1140, November.
    3. Badzińska Ewa, 2016. "Innovative multimedia project – the exemplification of the concept of technological entrepreneurship," Engineering Management in Production and Services, Sciendo, vol. 8(2), pages 38-46, June.
    4. Kirsten Foss & Nicolai J. Foss & Peter G. Klein, 2006. "Original and Derived Judgment An Entrepreneurial Theory of Economic Organization," DRUID Working Papers 06-09, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    5. Ewa Badzińska, 2016. "The Concept of Technological Entrepreneurship: The Example of Business Implementation," Entrepreneurial Business and Economics Review, Centre for Strategic and International Entrepreneurship at the Cracow University of Economics., vol. 4(3), pages 57-72.
    6. Philip Auerswald, 2008. "Entrepreneurship in the Theory of the Firm," Small Business Economics, Springer, vol. 30(2), pages 111-126, February.
    7. Christian Bjørnskov & Nicolai Foss, 2010. "Economic Freedom and Entrepreneurial Activity: Some Cross-Country Evidence," Springer Books, in: Andreas Freytag & Roy Thurik (ed.), Entrepreneurship and Culture, chapter 0, pages 201-225, Springer.
    8. Kor, Yasemin Y. & Mahoney, Joseph T. & Michael, Steven C., 2005. "Resources, Capabilities and Entrepreneurial Perceptions," Working Papers 05-0120, University of Illinois at Urbana-Champaign, College of Business.
    9. Ross, R. Brent & Westgren, Randall E., 2006. "Economic Returns to Entrepreneurial Behavior," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 38(2), pages 403-419, August.
    10. Cecere, Grazia, 2012. "Creative and adaptive responses in technological change," 23rd European Regional ITS Conference, Vienna 2012 60396, International Telecommunications Society (ITS).
    11. Foss, Nicolai J. & Klein, Peter G. & Kor, Yasemin Y. & Mahoney, Joseph T., 2006. "Entrepreneurship, Subjectivism, and the Resource-Based View: Towards a New Synthesis," Working Papers 06-0121, University of Illinois at Urbana-Champaign, College of Business.
    12. Kosacoff, Bernardo & Ramos, Adrián, 2006. "Microeconomic behavior in high uncertainty environments: the case of Argentina," Documentos de Proyectos 3538, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    13. Cook, Michael L. & Plunkett, Brad, 2006. "Collective Entrepreneurship: An Emerging Phenomenon in Producer-Owned Organizations," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 38(2), pages 1-8, August.
    14. Sara Carter, 2011. "The Rewards of Entrepreneurship: Exploring the Incomes, Wealth, and Economic Well–Being of Entrepreneurial Households," Entrepreneurship Theory and Practice, , vol. 35(1), pages 39-55, January.
    15. Defeuilley, Christophe, 2009. "Retail competition in electricity markets," Energy Policy, Elsevier, vol. 37(2), pages 377-386, February.
    16. Kraaijenbrink, Jeroen & Spender, JC & Groen, Aard, 2009. "The resource-based view: A review and assessment of its critiques," MPRA Paper 21442, University Library of Munich, Germany.
    17. Pitelis, Christos & Teece, David, 2009. "The (new) nature and essence of the firm," MPRA Paper 24317, University Library of Munich, Germany.

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    More about this item

    Keywords

    Entrepreneurship; heterogeneous assets; judgment; ownership; firm boundaries; internal organization;
    All these keywords.

    JEL classification:

    • B53 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Austrian
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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