Entrepreneurship and the Economic Theory of the Firm: Any Gains from Trade?

Nicolai J. Foss, Peter G. Klein

Research output: Working paperResearch

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Though they developed in isolation, the theory of entrepreneurship and the economic theory of the firm can be usefully integrated. In particular, the concept of entrepreneurship as judgment associated with Knight (1921) and some Austrian school economists aligns naturally with the theory of the firm. Because judgment cannot be purchased on the market, the entrepreneur needs a firm — a set of alienable assets he controls — to carry out his function. We show how this notion of judgment illuminates key themes in the modern theory of the firm (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 final goods. The entrepreneur's problem is aggravated by the fact that capital assets are heterogeneous.Asset ownership allows the entrepreneur to experiment with novel combinations of heterogeneous assets. The boundaries of the firm, as well as aspects of internal organization, may also be understood as responses to entrepreneurial processes of experimentation.
Original languageEnglish
Place of PublicationKøbenhavn
PublisherThe Center for Knowledge Governance. Department of Management, Politics and Philosophy, Copenhagen Business School
Number of pages26
ISBN (Print)8791506263
Publication statusPublished - 2004
SeriesCKG Working Paper


  • Entrepreneurship
  • Heterogeneous assets
  • Judgment
  • Ownership
  • Firm boundaries
  • Internal organization

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