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Articles - Dew et al (2004)

4 important questions on Articles - Dew et al (2004)

The specific question we discuss in this article is when and why

an entrepreneurial opportunity will be taken to market through an existing firm, and when and why a new firm will be chosen as a vehicle for taking a new idea to market, i.e., whether the residual will be concentrated in an existing or in a new firm.

The core of the theory presented here is that three phenomena arise from the dispersion of knowledge that are critical to an entrepreneurial theory of the firm. The first

is that the dispersion of knowledge gives rise to genuine uncertainty, which necessitates the contractual structure that we recognize as a firm.1 The second is that dispersion of knowledge and genuine uncertainty contribute to the heterogeneity of expectations that must exist in order for one or more individuals to exploit the potential of the contractual structure of the firm. The expectations give rise to the nexus of the enterprising individual and the opportunity to discover, create, and exploit new markets. These three elements together explain why particular new firms are created

Akerlofian information asymmetry, in combination with dispersion of knowledge over time, leads to

Knightian uncertainty (Knight, 1921), and forms the core element of the entrepreneurial theory of the firm that we develop in this essay. We argue that dispersed knowledge, along with Knightian uncertainty, contributes to economic agents having heterogeneous expectations. These heterogeneous expectations, in turn, lead to the nexus of an individual and an opportunity.