Abstract
We examine the argument, put forward by modern management writers and, in a somewhat different guise by Austrian economists, that authority is not a viable mechanism of coordination in the presence of “distributed knowledge” We define authority and distributed knowledge and argue that authority is compatible with distributed knowledge. Moreover, it is not clear on theoretical grounds how distributed knowledge impacts on economic organization. An implication is that the Austrian argument that designed orders are strongly constrained by the Hayekian dispersed knowledge (Hayek, Kirzner, Sautet) is less decisive than it has usually been taken to be. The positive flipside of this argument is that Austrians confront an exciting research agenda in theorizing how distributed knowledge impacts economic organization.
Similar content being viewed by others
References
Aumann, R. (1976). Agreeing to disagree. The Annals of Statistics, 4, 1236–1239.
Boettke, P. (1989). Comment on Joseph Farrell, Information and the Coase Theorem. Journal of Economic Perspectives, 3, 195–198.
Bolton, P., & Joseph, F. (1990). Decentralization, duplication, and delay. Journal of Political Economy, 98, 803–826.
Brusoni, S., Andrea, P., & Keith, P. (2001). Knowledge specialization, organizational coupling, and the boundaries of the firm: Why do firms know more than they make? Administrative Science Quarterly, 46, 597–621.
Coase, R. H. (1937). The Nature of the Firm. In: The Theory of the Firm: Critical Perspectives in Business and Management, Vol II. N. J. Foss (ed.) 1999. London: Routledge.
Coleman, J. S. (1990). Foundations of Social Theory. Cambridge, MA: The Belknap Press of Harvard University Press.
Cowen, T., & David, P. (1997). Markets in the Firm: A Market Process Approach to Management. London: Institute of Economic Affairs.
Foss, N. J. (1999). The Use of Knowledge in Firms. Journal of Institutional and Theoretical Economics, 155, 458–486.
Foss, N. J. (2001). Misesian ownership and coasian authority in hayekian settings: The case of the knowledge economy. Quarterly Journal of Austrian Economics, 4, 3–24.
Foss, K., & Nicolai, J. F. (2003). Authority in the context of distributed knowledge. DRUID Working Paper.
Garicano, L. (2000). Hierarchies and the organization of knowledge in production. Journal of Political Economy, 108, 874–904.
Gerbrandy, J. D. (1998). Bisimulations on planet kripke. Ph.d.-dissertation, Institute for Logic, Language and Computing, Amsterdam University.
Granstrand, O., Pari, P., & Keith, P. (1997). Multitechnology corporations: Why they have ‘distributed’ rather than ‘distinctive core’ capabilities. California Management Review, 39(4), 8–25.
Grandori, A. (1997). Governance structures, coordination mechanisms and cognitive models. Journal of Management and Governance, 1, 29–42.
Grandori, A. (2002). Cognitive failures’ and combinative failures. Journal of Management and Governance, 6, 252–260.
Halpern, J. Y., & Yoram, M. (1990). Knowledge and common knowledge in a distributed environment. Journal of the Association for Computing Machinery, 37, 549–587.
Hammond, T. H., & Gary, J. M. (1985). A social choice perspective on expertise and authority in bureaucracy. American Journal of Political Science, 29, 611–638.
Hart, O. (1995). Firm, Contracts, and Financial Structure. Oxford: Oxford University Press.
Hayek, F. A. von (1935). Socialist calculation: the state of the debate. In idem, 1948. Individualism and Economic Order. Chicago: University of Chicago Press.
Hayek, F. A. von (1945). The use of knowledge in society. In idem, 1948. Individualism and Economic Order. Chicago: University of Chicago Press.
Hayek, F. A. von (1973). Law, Legislation and Liberty. Vol. 1: Rules and Order. Chicago: University of Chicago Press.
Hintikka, J. (1962). Knowledge and Belief. Ithaca, NY: Cornell University Press.
Hodgson, G. (1998). Economics and Utopia. London: Routledge.
Jensen, M. C., & William, H. M. (1992). Specific and general knowledge and organizational structure. in L. Werin and H. Wijkander, (eds.), 1992. Contract Economics. Oxford: Blackwell.
Kaldor, N. (1934). The Equilibrium of the firm. Economic Journal, 44, 60–76.
Kirzner, I. M. (1992). The Meaning of the Market Process. London: Routledge.
Klein, P. G. (1996). Economic calculation and the limits of organization. Review of Austrian Economics, 9, 3–28.
Knight, F. H. (1921). Risk, Uncertainty and Profit. 1964 reprint. New York: Augustus M. Kelley.
Langlois, R. N. (1992). Transaction-cost economics in real time. Industrial and Corporate Change, 1, 99–127.
Langlois, R. N. (1995). Do firms plan? Constitutional Political Economy.
Langlois, R. N., & Nicolai, J. F. (1999). Capabilities and governance: the rebirth of production in the theory of economic organization. KYKLOS, 52, 201–218.
Lavoie, D. (1985). Rivalry and Central Planning. Cambridge: Cambridge University Press.
March, J. G., & Herbert, A. S. (1958). Organizations. New York: Wiley.
Marengo, L. (1995). Structure, competence, and learning in organizations. Wirtschaftspolitische Blätter, 6, 454–464.
Milgrom, P., & John, R. (1992). Economics, Organization, and Management. Prentice-Hall.
Miller, G. (1992). Managerial Dilemmas. Cambridge: Cambridge University Press.
Minkler, A. P. (1993). Knowledge and internal organization. Journal of Economic Behavior and Organization, 21, 17–30.
Pelikan, P. (1988). Can the imperfect innovation system of capitalism be outperformed? in G. Dosi, C. Freeman, R. R. Nelson, G. Silverberg and L. Soete, (eds.), Technical Change and Economic Theory. London: Pinter.
Radner, R. (2000). Costly and bounded rationality in individual and team decision making. Industrial and Corporate Change, 9, 623–658.
Richardson, G. B. (1972). The organisation of industry. Economic Journal, 82, 883–96.
Rothbard, M. (1962). Man, Economy, and State. Princeton: van Nostrand.
Salanié, B. (1997). The Economics of Contracts. Cambridge: MIT Press.
Sautet, F. (2000). An Entrepreneurial Theory of the Firm. London: Routledge.
Simon, H. A. (1951). A formal theory of the employment relationship. In idem. 1982. Models of Bounded Rationality. Cambridge: MIT Press.
Simon, H. A. (1991). Organizations and markets. Journal of Economic Perspectives, 5, 25–44.
Spangler, W. E., & James, M. P. (2001). A model of distributed knowledge and action in complex systems. Decision Support Systems, 31, 103.
Thompson, J. D. (1956). Authority and power in identical organizations. American Journal of Sociology, 62.
Thompson, J. D. (1967). Organizations in Action. New York: McGraw-Hill.
Tsoukas, H. (1996). The firm as a distributed knowledge system: a constructionist approach. Strategic Management Journal, 17, 11–25.
Wang, Q., & Tunzelman, G. N. von (2000). Complexity and the functions of the firm: breadth and depth. Research Policy, 29, 805–818.
Weber, M. (1947). The Theory of Economic and Social Organization. New York: Oxford University Press.
Williamson, O. E. (1970). Corporate Control and Business Behavior. Englewood Cliffs: Prentice-Hall.
Williamson, O. E. (1985). The Economic Institutions of Capitalism. New York: Free Press.
Williamson, O. E. (1996). The Mechanisms of Governance. Oxford: Oxford University Press.
Yates, A. J. (2001). The knowledge problem, entrepreneurial discovery, and austrian market process theory. Journal of Economic Theory, 91, 59–85.
Author information
Authors and Affiliations
Additional information
JEL Codes B53, L20
Rights and permissions
About this article
Cite this article
Foss, K., Foss, N.J. The limits to designed orders: Authority under “distributed knowledge” conditions. Rev Austrian Econ 19, 261–274 (2006). https://doi.org/10.1007/s11138-006-9248-9
Issue Date:
DOI: https://doi.org/10.1007/s11138-006-9248-9