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The Entrepreneurial Theory of the Firm and the Theory of the Entrepreneurial Firm

  • Richard N. Langlois

    (University of Connecticut)

The entrepreneurial theory of the firm argues that entrepreneurship, properly understood, is a crucial but neglected element in explaining the nature and boundaries of the firm. By contrast, the theory of the entrepreneurial firm presumably seeks not to understand the nature and boundaries of "the firm" in general but rather to understand a particular type of firm: one that is entrepreneurial. This paper is an attempt to reconcile the two. After briefly delving for the concept of entrepreneurship in the work of Schumpeter, Kirzner, and (especially) Knight, the paper makes the case for the entrepreneurial theory of the firm. In such a theory, the firm exists as the solution to a coordination problem in a world of change and uncertainty, including Knightian or structural uncertainty. Taking a historical or developmental perspective, the paper then examines the changing nature of the entrepreneurial coordination problem over the life-cycle. In this formulation, "the entrepreneurial firm" is a nascent firm or proto-firm facing a problem of coordinating systemic change in economic capabilities. Lacking (by definition) adequate guidance from existing systems of rules of conduct embedded in markets or organizations, the entrepreneurial firm typically relies on a form of organization Max Weber called charismatic authority. In the end, although there is no such thing as a non-entrepreneurial firm, firms that must solve coordination problems in a world of novelty and systemic change ("entrepreneurial firms") are perhaps the purest case of the entrepreneurial theory of the firm.

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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2005-27.

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Length: 41 pages
Date of creation: Jun 2005
Date of revision: Oct 2005
Handle: RePEc:uct:uconnp:2005-27
Note: Paper for the conference "Why Do Entrepreneurial Firms Exist?" Ohio State University, October 27-29, 2005. To be considered for a special issue of the Journal of Management Studies.
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