"Coase vs Hayek": Economic Organization in the Knowledge Economy

Nicolai Foss ()

No 2001-6, IVS/CBS Working Papers from Department of Industrial Economics and Strategy, Copenhagen Business School

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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Journal Article: 'Coase vs Hayek': Economic Organization and the Knowledge Economy (2002)
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