Original and Derived Judgment

An Entrepreneurial Theory of Economic Organization

    Research output: Contribution to journalJournal articleResearchpeer-review

    Abstract

    Recent work links entrepreneurship to the economic theory of the firm, using the concept of entrepreneurship as judgment introduced by Frank Knight. When judgment is complementary to other assets, it makes sense for entrepreneurs to hire labour and to own assets. The entrepreneur's role, then, is to arrange or organize the human and capital assets under his or her control. We extend this Knightian concept of the firm by developing a theory of delegation under Knightian uncetainty. What we call original judgment belongs exclusively to owners, but owners may delegate a wide range of decision rights to subordinates, who exercise derived judgment. We call these employees `proxy-entrepreneurs', and ask how the firm's organizational structure - its formal and informal systems of rewards and punishments, rules for settling disputes and renegotiating agreements, means of evaluating performance and so on - can be designed to encourage forms of proxy entrepreneurship that increase firm value while discouraging actions that destroy value. Building on key ideas from the entrepreneurship literature, Austrian economics and the economic theory of the firm, we develop a framework for analysing the trade-off between productive and destructive proxy entrepreneurship. We link this analysis to the employment relation and ownership structure, providing new insights into these and related issues in the economic theory of the firm.
    Original languageEnglish
    JournalOrganization Studies
    Volume28
    Issue number12
    Pages (from-to)1-20
    Number of pages21
    ISSN0170-8406
    DOIs
    Publication statusPublished - 2007

    Keywords

    • judgment
    • employment relation
    • delegation
    • entrepreneur
    • ownership

    Cite this

    @article{0ef935907a3911dc8979000ea68e967b,
    title = "Original and Derived Judgment: An Entrepreneurial Theory of Economic Organization",
    abstract = "Recent work links entrepreneurship to the economic theory of the firm, using the concept of entrepreneurship as judgment introduced by Frank Knight. When judgment is complementary to other assets, it makes sense for entrepreneurs to hire labour and to own assets. The entrepreneur's role, then, is to arrange or organize the human and capital assets under his or her control. We extend this Knightian concept of the firm by developing a theory of delegation under Knightian uncetainty. What we call original judgment belongs exclusively to owners, but owners may delegate a wide range of decision rights to subordinates, who exercise derived judgment. We call these employees `proxy-entrepreneurs', and ask how the firm's organizational structure - its formal and informal systems of rewards and punishments, rules for settling disputes and renegotiating agreements, means of evaluating performance and so on - can be designed to encourage forms of proxy entrepreneurship that increase firm value while discouraging actions that destroy value. Building on key ideas from the entrepreneurship literature, Austrian economics and the economic theory of the firm, we develop a framework for analysing the trade-off between productive and destructive proxy entrepreneurship. We link this analysis to the employment relation and ownership structure, providing new insights into these and related issues in the economic theory of the firm.",
    keywords = "innovationentrepreneurship&lederskab, Corporate entrepreneurship, judgment, employment relation, delegation, entrepreneur, ownership",
    author = "Kirsten Foss and Foss, {Nicolai Juul} and Klein, {Peter G.}",
    year = "2007",
    doi = "10.1177/0170840606076179",
    language = "English",
    volume = "28",
    pages = "1--20",
    journal = "Organization Studies",
    issn = "0170-8406",
    publisher = "Sage Publications Ltd.",
    number = "12",

    }

    Original and Derived Judgment : An Entrepreneurial Theory of Economic Organization. / Foss, Kirsten; Foss, Nicolai Juul; Klein, Peter G.

    In: Organization Studies, Vol. 28, No. 12, 2007, p. 1-20.

    Research output: Contribution to journalJournal articleResearchpeer-review

    TY - JOUR

    T1 - Original and Derived Judgment

    T2 - An Entrepreneurial Theory of Economic Organization

    AU - Foss, Kirsten

    AU - Foss, Nicolai Juul

    AU - Klein, Peter G.

    PY - 2007

    Y1 - 2007

    N2 - Recent work links entrepreneurship to the economic theory of the firm, using the concept of entrepreneurship as judgment introduced by Frank Knight. When judgment is complementary to other assets, it makes sense for entrepreneurs to hire labour and to own assets. The entrepreneur's role, then, is to arrange or organize the human and capital assets under his or her control. We extend this Knightian concept of the firm by developing a theory of delegation under Knightian uncetainty. What we call original judgment belongs exclusively to owners, but owners may delegate a wide range of decision rights to subordinates, who exercise derived judgment. We call these employees `proxy-entrepreneurs', and ask how the firm's organizational structure - its formal and informal systems of rewards and punishments, rules for settling disputes and renegotiating agreements, means of evaluating performance and so on - can be designed to encourage forms of proxy entrepreneurship that increase firm value while discouraging actions that destroy value. Building on key ideas from the entrepreneurship literature, Austrian economics and the economic theory of the firm, we develop a framework for analysing the trade-off between productive and destructive proxy entrepreneurship. We link this analysis to the employment relation and ownership structure, providing new insights into these and related issues in the economic theory of the firm.

    AB - Recent work links entrepreneurship to the economic theory of the firm, using the concept of entrepreneurship as judgment introduced by Frank Knight. When judgment is complementary to other assets, it makes sense for entrepreneurs to hire labour and to own assets. The entrepreneur's role, then, is to arrange or organize the human and capital assets under his or her control. We extend this Knightian concept of the firm by developing a theory of delegation under Knightian uncetainty. What we call original judgment belongs exclusively to owners, but owners may delegate a wide range of decision rights to subordinates, who exercise derived judgment. We call these employees `proxy-entrepreneurs', and ask how the firm's organizational structure - its formal and informal systems of rewards and punishments, rules for settling disputes and renegotiating agreements, means of evaluating performance and so on - can be designed to encourage forms of proxy entrepreneurship that increase firm value while discouraging actions that destroy value. Building on key ideas from the entrepreneurship literature, Austrian economics and the economic theory of the firm, we develop a framework for analysing the trade-off between productive and destructive proxy entrepreneurship. We link this analysis to the employment relation and ownership structure, providing new insights into these and related issues in the economic theory of the firm.

    KW - innovationentrepreneurship&lederskab

    KW - Corporate entrepreneurship

    KW - judgment

    KW - employment relation

    KW - delegation

    KW - entrepreneur

    KW - ownership

    U2 - 10.1177/0170840606076179

    DO - 10.1177/0170840606076179

    M3 - Journal article

    VL - 28

    SP - 1

    EP - 20

    JO - Organization Studies

    JF - Organization Studies

    SN - 0170-8406

    IS - 12

    ER -