Uncertainty, Judgment, and the Theory of the Firm

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Uncertainty, Judgment, and the Theory of the Firm. / Hallberg, Niklas Lars.

I: Journal of Institutional Economics, Vol. 11, Nr. 3, 2015, s. 623-650.

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TY - JOUR

T1 - Uncertainty, Judgment, and the Theory of the Firm

AU - Hallberg, Niklas Lars

PY - 2015

Y1 - 2015

N2 - The effects of a truly uncertain future are more far-reaching than what has traditionally been assumed in transaction cost economics. Uncertain governance choices require that agents exercise judgment in the absence of other means of estimating the payoffs associated with complex combinations of transaction attributes, contractual contingencies, and governance structures. Judgments are made on an experimental basis to incrementally improve actors’ heterogeneous cognitive representations of the contractual landscape. I argue that uncertain governance choices are subject to specific decision-biases that interact with the potentially corrective function of current organization and asymmetries in actors’ access to decision-supporting systems. These asymmetries may affect the contracting parties’ preferences over differential governance structures. Specifically, by overestimating individual unbiased rationality and disregarding how access to decision-supporting systems may affect governance choice, transaction cost economics runs the risk of underestimating the degree of vertical integration in actual firms.

AB - The effects of a truly uncertain future are more far-reaching than what has traditionally been assumed in transaction cost economics. Uncertain governance choices require that agents exercise judgment in the absence of other means of estimating the payoffs associated with complex combinations of transaction attributes, contractual contingencies, and governance structures. Judgments are made on an experimental basis to incrementally improve actors’ heterogeneous cognitive representations of the contractual landscape. I argue that uncertain governance choices are subject to specific decision-biases that interact with the potentially corrective function of current organization and asymmetries in actors’ access to decision-supporting systems. These asymmetries may affect the contracting parties’ preferences over differential governance structures. Specifically, by overestimating individual unbiased rationality and disregarding how access to decision-supporting systems may affect governance choice, transaction cost economics runs the risk of underestimating the degree of vertical integration in actual firms.

KW - decision-biases

KW - entrepreneurial judgment

KW - transaction cost economics

U2 - 10.1017/S1744137414000381

DO - 10.1017/S1744137414000381

M3 - Article

VL - 11

SP - 623

EP - 650

JO - Journal of Institutional Economics

JF - Journal of Institutional Economics

SN - 1744-1382

IS - 3

ER -