Original and Derived Judgment: An Entrepreneurial Theory of Economic Organization

By Kirsten Foss, N. J. Foss, Peter G. Klein. 2007

272 citations recorded by the source corpus.

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.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/a764571ab1d060049f0ea88db7dadec79afa4899

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

In Economics and Econometrics

Citations in the corpus

Opportunity Discovery, Entrepreneurial Action, and Economic Organization (2008, background): “And internal organization can be interpreted as the means by which the entrepreneur delegates particular decision rights to subordinates who exercise a form of derived judgment on his/her behalf ( Foss, Foss, and Klein, 2007 ).”
The Resource-Based View: A Review and Assessment of Its Critiques (2010, background): “As Foss et al. (Foss et al., 2007a; Foss, Foss, Klein, & Klein, 2007b; Foss & Ishikawa, 2007; Foss & Klein, 2005), Kor, Mahoney, & Michael (2007), and Alvarez & Busenitz (2001) argue, the practical assessment and evaluation of resources involves subjectivism, knowledge creation, and entrepreneurial ”
Entrepreneurship, Subjectivism, and the Resource-Based View: Towards a New Synthesis (2008, unknown): “An effective entrepreneurial organizational structure is one that encourages employees to exercise creativity, experiment, and learn in ways that increase an organization’s economic value while discouraging unproductive rent-seeking behavior (Alvarez and Barney, 2006; Foss, Foss, and Klein, 2007).”
Opportunity Discovery, Problem Solving and the Entrepreneurial Theory of the Firm (2007, background): “…major theories taking shape in the entrepreneurship literature: economics of entrepreneurship, where judgment distinguishes the entrepreneur (e.g. Foss et al., 2007); and the nexus of opportunities approach, which argues that entrepreneurship results from the match between opportunity and…”
Toward a Theory of Public Entrepreneurship (2010, background): “Theoretical and empirical examination of the concept of the public interest is analogous to examination of the concept of corporate performance: despite the challenges, the process of inquiry itself delivers rich insights about the phenomena.”