Organizations and Markets

Hayekian Knowledge Arguments: An Epistemic Fallacy?

| Nicolai Foss |

A small handful of papers have become highly influential in economics as well as in management and organization research. One such paper is Friedrich Hayek’s 1945 essay, “The Use of Knowledge in Society,” a paper that emerged in the context of the debate on the viability and efficiency of planned resource allocation on the societal level (i.e., socialism) that raged among academic economists in (particularly) the inter-war period. Hayek famously argued that planning confronts inherent knowledge-based constraints, and these constraints are certainly binding at a scale of activity that makes comprehensive overall management/planning of economy-wide resource allocation deeply inefficient. Many modern management thinkers have echoed this argument, arguing that “traditional” authority relations are increasingly challenged by the (increasingly) dispersed nature of knowledge.

However, at least when applied to authority in firms the Hayekian knowledge argument arguably misconstrues the nature of managerial authority, because it is based on an epistemic fallacy. (more…)

14 March 2008 at 7:52 am Nicolai Foss 7 comments