The Entrepreneurial Theory of the Firm

The Entrepreneurial Theory of the Firm - Department of...

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Department of Economics Economics Working Papers University of Connecticut Year 2005 The Entrepreneurial Theory of the Firm and the Theory of the Entrepreneurial Firm Richard N. Langlois University of Connecticut This paper is posted at [email protected] http://digitalcommons.uconn.edu/econ wpapers/200527
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Department of Economics Working Paper Series The Entrepreneurial Theory of the Firm and the Theory of the Entrepreneurial Firm Richard N. Langlois University of Connecticut Working Paper 2005-27R June 2005, revised October 2005 341 Mansfield Road, Unit 1063 Storrs, CT 06269–1063 Phone: (860) 486–3022 Fax: (860) 486–4463 http://www.econ.uconn.edu/ This working paper is indexed on RePEc, http://repec.org/
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Abstract The entrepreneurial theory of the firm argues that entrepreneurship, properly understood, is a crucial but neglected element in explaining the nature and bound- aries 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 coordinat- ing systemic change in economic capabilities. Lacking (by definition) adequate guidance from existing systems of rules of conduct embedded in markets or orga- nizations, 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. Journal of Economic Literature Classification: B25, L22, M13 Keywords: entrepreneurship, transaction costs, coordination, Coase, Knight, Schumpeter, Weber. 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 Jour- nal of Management Studies.
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Introduction. Why do entrepreneurial firms exist?
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The Entrepreneurial Theory of the Firm - Department of...

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