Working Paper Series, Department of Industrial Economics & Strategy, Copenhagen Business School
Nicolai J. Foss
"Coase vs Hayek": Economic Organization in the Knowledge Economy
Abstract: Many writers argue that economic organization will be
strongly transformed in the emerging knowledge economy. Thus, authority
relations will wither, or at least undergo significant changes; legal and
ownership-based definitions of the boundaries of firms will become
irrelevant; and there will be very few or no constraints on the set of
feasible combinations of coordination mechanisms, as manifested in the
increasing proliferation of “new organizational forms.” The increased
importance of specialist knowledge and the strategic imperative of rapidly
adjusting to constantly changing contingencies mean that firms lose power
over employees and that knowledge-based networks that cut across the
boundaries of firms become as, or more, important as intra-firm relations.
The present paper critically deals with these claims, beginning from the
basic idea that they may be analyzed as turning on the implications for the
Coasian firm of the Hayekian notion that the distributed and subjective
character of economically relevant knowledge is a strongly binding
constraint on the use of planned coordination. Based on organizational
economics, it is argued that efficiency reasons for the existence of
authority under Hayekian distributed knowledge may be given; that the
increasing importance of knowledge assets does not render legal and
ownership-based notions of the boundaries of the firm irrelevant; and that
coordination mechanisms will also cluster in certain, predictable
combinations in the emerging knowledge economy.
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