First Copies of the New Book

7 March 2012 at 5:48 pm 15 comments

| Peter Klein |

Nicolai was in town yesterday to deliver the 2012 Sherlock Hibbs Distinguished Lecture in Economics and Business, and he gave a terrific talk about “open entrepreneurship,” the application of concepts and principles from the open innovation literature to the discovery, evaluation, and exploitation of entrepreneurial opportunities. Upon returning to my office after the lecture, I found a surprise waiting for me: the first hardcopies of our new book, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012). As both authors happened to be together, we preserved the moment for posterity.

You can order today on Amazon’s UK site (or pre-order on the US site, which shows a publication date of 30 April). You can order directly from Cambridge (UK or US).

A brief description and some endorsements are below the fold.

NB: Tomorrow Nicolai is giving the Hayek Lecture at the Austrian Scholars Conference, which you can watch live online.

Update: O&M readers can order directly from Cambridge and receive a 20% discount! Use this link.

Product Description

Entrepreneurship, long neglected by economists and management scholars, has made a dramatic comeback in the last two decades, not only among academic economists and management scholars, but also among policymakers, educators and practitioners. Likewise, the economic theory of the firm, building on Ronald Coase’s (1937) seminal analysis, has become an increasingly important field in economics and management. Despite this resurgence, there is still little connection between the entrepreneurship literature and the literature on the firm, both in academia and in management practice. This book fills this gap by proposing and developing an entrepreneurial theory of the firm that focuses on the connections between entrepreneurship and management. Drawing on insights from Austrian economics, it describes entrepreneurship as judgmental decision made under uncertainty, showing how judgment is the driving force of the market economy and the key to understanding firm performance and organization.


Advance praise: ‘It is about time entrepreneurship came into its own within economics, moving out of the mystical shadows of creative destruction and the magical imagination of the attentive entrepreneur into the more mundane and tractable reality unfolding in our empirical work. The actual content of entrepreneurial judgment has far reaching implications not only for theories of the firm, but more generally for economic organization. In this book, Foss and Klein have turned the corner on research (or lack thereof) into this important topic.’

– Saras Sarasvathy, Isadore Horween Research Associate Professor, The Darden School, University of Virginia

Advance praise: ‘This is a path breaking book. Foss and Klein connect the growing entrepreneurship literature with the rich theories of the organization. It offers important rich and original insights that will undoubtedly revise long held views of entrepreneurship in organizations and how managers make judgments about entrepreneurial initiatives. Well written and grounded in solid research, the book will surely inspire and enrich future scholarship.’

– Shaker A. Zahra, Department Chair, Robert E. Buuck Chair, and Professor of Strategic and Organization, Carlson School of Management, University of Minnesota

Advance praise: ‘Foss and Klein’s book is necessary after decades in which the theory of the firm was either lost in a haze of differential equations going nowhere or obsessed with structural mechanisms relating to divisionalization in large groups. I’ve lost track of the number of so-called economist colleagues for whom “entrepreneur” is a dirty word — mainly I think because they can’t encapsulate it in their maths.’

– Mike Wright, Professor of Entrepreneurship and Director, Centre for Management Buy-out Research Imperial College Business School

Entry filed under: - Klein -, Austrian Economics, Entrepreneurship, Management Theory, Recommended Reading, Strategic Management, Theory of the Firm. Tags: .

Hayek on Schumpeter on Methodological Individualism Lazear and Spletzer on Creative Destruction

15 Comments Add your own

  • 1. Jonathan M.F. Catalán  |  7 March 2012 at 6:37 pm

    How does this book compare to your collection (anthology) of academic articles published by the Mises Institute?

  • 2. Peter Klein  |  7 March 2012 at 7:43 pm

    Many similar themes, but different arguments and emphases. The earlier book (a collection of previously published papers) is about prices and markets, told from the econmomist’s point of view. It explains how entrepreneurship can be incorporated into a more general understanding of the market system. The new book is about entrepreneurship per se and its relationship with management and organization, emphasizing the firm’s point of view. It deals in much more detail with entrepreneurship theory, the modern entrepreneurship literature, the treatment of entrepreneurship by Austrian economists such as Mises, Kirzner, Lachmann, and how incorporating entrepreneurship into organization theory gives us a new theory of the firm. It unpacks and extends the idea of entrepreneurial judgment, introduced by Knight and (we argue) implicitly adopted by Mises and Lachmann, and argues that the theory of the firm is ultimately about facilitating and organizing judgment. And, of course, the old book is (mostly) all me, while the new book is a joint effort between me and Professor Foss.

  • 3. Entrepreneurship and the Firm | Economic Thought  |  8 March 2012 at 11:20 am

    [...] Klein points us to his book on his blog, and answers some questions of mine regarding the differences between this [...]

  • 4. Rafe  |  8 March 2012 at 2:55 pm


  • 5. Richard Ebeling  |  9 March 2012 at 12:02 pm


    I received an email from Amazon yesterday that my pre-order has been delayed until early May 2012, due to the book not yet being available for shipment.

    I’m depressed !!!!

    Richard Ebeling

  • 6. Peter Klein  |  9 March 2012 at 12:13 pm

    Richard, sorry to hear that. I’ll see what I can find out. The last thing we want to do is trigger a new worldwide Great Depression!

  • 7. Randy  |  9 March 2012 at 1:03 pm

    I hope the books are ready before the movie comes out!

  • 8. Rafe  |  9 March 2012 at 4:14 pm

    Looking forward to the Readers Digest Condensed version! That did wonders for Hayek, but then there was no film of Serfdom to get to the general public.

    A suggestion, if you want to make real money out of the film, insist on playing the lead roles yourselves!

  • 9. Peter Klein  |  9 March 2012 at 4:28 pm

    Thanks Rafe, but John Lithgow, jim Carey, and Michael Keaton are already in talks for the Klein role.

  • 10. Richard Ebeling  |  9 March 2012 at 7:00 pm


    Yes, there was no movie version of “The Road to Serfdom,” but there was the cartoon adaptation.

    That’s almost as good — especially if you have a hard time looking at pages without pictures.

    Richard Ebeling

  • 11. Randy  |  9 March 2012 at 7:08 pm

    Jeremy Piven will play Klein. Paul Bettany will play Foss. That way, NJF will be taller in the film :-)

  • 12. Aidan Walsh  |  5 April 2012 at 5:19 am

    I have it and I’m ploughing my way through it. It’s an excellent overview of the whole area, very useful.

    But I’m kind of surprised that there is no real discussion of rules (articulated or tacit) as a way of organizing entrepreneurial judgment?

    No mention of Ioannides even though he is right in your zone and could have been usefully discussed in Chapter 8 ((Ioannides, S. (2003b). Orders and Organizations: Hayekian insights for a theory of economic organization – Novel insights about Organization. American Journal of Economics and Sociology , 533-566.
    Ioannides, S. (2003a). The Business Firm as a Hybrid Hayekian Order: What is the Role of the Entreprenuer. Advances in Austrian Economics , 153-171.)

  • 13. Peter Klein  |  7 April 2012 at 11:26 pm

    Aidan, we’re certainly familiar with this literature, but don’t think it adds a lot to our story. Could you be more specific about how you think it fits?

  • 14. Aidan Walsh  |  18 April 2012 at 2:59 am

    Sorry for the delay in replying but I was away.

    I’m sure that our interests are in different aspects of the firm, you are interested in the entrepreneur but being a mid-ranking executive I am interested in the poor employee trying to make sense of it all!

    You are focused on the idea of entrepreneurial judgment. And you say that the theory of the firm and the theory of entrepreneurship should be treated together. You do deal with heuristics as a way of making decisions under uncertainty at page 97 looking at the decisions that the entrepreneur has to make.

    Certainly Kahneman agrees with you: ‘Whatever else it produces, an organization is a factory that manufactures judgments and decisions’ (Kahneman, Thinking Fast and Slow (2011, p. 418)) Heuristics and rule following as a coordination mechanism is starting to be noticed in the management literature: Eisenhardt, K. M., & Sull, D. N. (2001). Strategy as Simple Rules. Harvard Business Review , 106 – 116.
    Bingham, C. B., & Haleblian, J. (. (forthcoming). How Firms Learn Heuristics: Uncovering Missing Components of Organizational Learning. Strategic Entrepreneurship Journal .
    Bingham, C. B., Eisenhardt, K. M., & Furr, N. R. (2007). What makes a process a capability? Heuristics, strategy, and effective capture of opportunities. Strategic Entrepreneurship Journal , 27-47.
    Bingham, C. B., Eisenhardt, K. M., & Furr, N. R. (2011). Which Strategy When. MIT Sloan Management Review , 53 (1), 71.

    But is there also an Austrian basis for this? As Hayek wrote: ‘We need decentralization because only thus can we insure that the knowledge of particular circumstances of time and place will be promptly used. But the man “on the spot” cannot decide solely on the basis of his limited but intimate knowledge of the facts of his immediate surroundings. There still remains the problem communicating to him such further information as he needs to fit his decisions into the whole pattern of changes in the larger economic system.’ (Hayek, 1948, 84) The conventional view is that this problem is solved by the market/money price system (see your page 213) but later did Hayek also position a more general solution?: ‘Rules are a device for coping with our constitutional ignorance.’ (Hayek, 1976; 8) and ‘[rules tell] the facts he may count on and thereby extends the range within which he can predict the consequences of his actions’ (Hayek, 1960, 156)

    You cite Jensen and Meckling’s 1992/1995 article (page 203 of your book) but this bit is also interesting:
    ‘Hayek assumes that markets automatically move decision rights to the agents with the relevant knowledge, and that those agents will use the decision rights properly. Unfortunately, he never discusses how this occurs.’ ‘…. [b]ecause agency costs inevitably result from the delegation of decision rights, the CEO must devise a control system (a set of rules) that fosters desirable behaviour … our empirical observations indicate that knowledge of these “rules of the game” enables one to make good predictions about an organization’s behaviour and effectiveness.’ Jensen, M. C., & Meckling, W. H. (1995). Specific and General Knowledge, the Organizational Structure. (Journal of Applied Corporate Finance , 4-18.)
    So if we look at the problem from your entrepreneurial perspective: Our entrepreneur is embarking on a highly uncertain discovery process where he or she does not know what the final product or market will look like (Ulrich Witt is very good on this but Ioannides is excellent on both the uncertainty and the importance of rules). At the same time, he or she must communicate their knowledge and coordinate the activities of a bunch of employees that have only the vaguest comprehension of what is going on but do have knowledge that they must act upon that is not available to the entrepreneur. How does that occur? And from the other perspective, what does the employee do? How does the hapless employee make a decision, we all agree there has to be decentralisation but on what basis are decentralised decisions made? Does the employee use heuristics/rules as well?

    You talk about hierarchy as a solution to this problem in Chapter 8. But is that right? You said that speed and coordination may require authority – but real speed flows from people taking decentralised but coordinated decisions without any need to deal with the centre (for example the WalMart staff during Katrina who were told: ‘Above all – Do the right thing’

    So what does an entrepreneur do? In my view, for what that is worth, they use rules. For example here is Henry Ford: ‘The plan which I then had in the back of my head but to which were then [1904] not sufficiently advanced to give expression, was that, when a model was settled on then every improvement on that model would be interchangeable with the old model, so that a car would never go out of date….’ (Ford, My Life and Work (1923, pp. 56-57)). ‘The universal car had to have these attributes:
    (1) Quality in material to give service in use. Vanadium steel is the strongest, toughest, and most lasting of steels. It forms the foundation and super-structure of the cars. It is the highest quality steel in this respect in the world, regardless of price.
    (2) Simplicity in operation – because the masses are not mechanics.
    (3) Power in sufficient quantity.
    (4) Absolute reliability – because of the varied uses to which the cars would be put and the variety of roads over which they would travel.
    (5) Lightness. With the Ford there are only 7.95 pounds to be carried by each inch of piston displacement. This is one of the reasons why Ford cars “are always going” wherever and whenever you see them – through sand and mud, through slush, snow, and water, up hills, across fields and roadless plains
    (6) Control …. “Anybody can drive a Ford”
    (7) …. the lighter the weight, the lighter the expense of operation…
    The design which I settled upon was called “Model T”.’
    (Ford & Crowther, 1923, p. 68).

    (Also, see Lachman’s example of setting up a new store (196 in your book)- how does WalMart decide on where to set up a new store: they use rules:

    I agree totally with your footnote on page 192 that the mechanisms for resource allocation in the firm and the market are different but that is because the rules are different (as they are between firms) rather than because one has a different type of coordination mechanism to the other. (I know you say the difference may not be that great at page 214.)

    PS: Don’t you think that what the conventional view calls ‘orders’ might be rules instead? And so Simon’s example, ‘repair this hinge’, can be rearticulated as a rule, (‘If a hinge is broken, repair it’) and a piece of information (‘This hinge is broken’). Coase’s example of a command (Coase, 1988, p. 35), an employee moving from department Y to department X ‘because he is ordered to do so’, can also be reinterpreted as a rule: if Dept X is quiet then move to Dept Y (see (Schlicht, On Custom in the Economy 1998, p. 222) and also Follett, 1941, page 51 – who both say this type of instruction is not an order but a rule)

    Phew! Sorry about the long comment!

  • 15. Aidan Walsh  |  23 April 2012 at 3:27 pm

    Hi Peter!

    You will have seen this. See also the comment on heuristics within the firm from Richard Eberling.


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Our Recent Books

Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).


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