Austrian Economics and the Theory of the Firm

Like most economists, Austrians have not shown much interest in the theory of the firm. This paper argues, however, that there is much in Austrian economics that dovetails with contemporary theorizing about the firm. Specifically, Austrian economics (in its Hayekian version) is compared to the two dominant approaches to the firm, the contractual and capabilities approaches. Austrian insights in the division of knowledge and the coordination of knowledge as well as insights in entrepreneurship complement this literature. However, it is also possible to develop a distinctly Austrian (coordination) view on firms that differs from both the contractual and the capabilities perspective. Whereas the contractual perspective conceptualizes the firm as nothing but a structure of incentives and property rights and the capabilities perspective conceptualizes the firm as a stock of given knowledge assets, the coordination view tends to see the firm as an entity that organizes a localized discovery procedures in the context of a structure of incomplete contracts and supporting shared mental constructs. In other words, the firm is seen as a cognitive entity.