ABSTRACT
This work is primarily concerned with Knight’s conception of imperfect competition and economic welfare: both of these issues are theoretically related through the presence of uncertainty. Knight conceives of imperfect competition as being centred around the acquisition of the most cost-efficient hedge against the costs which uncertainty can impose on the firm. If a firm can acquire such a hedge, then it will reduce the cost of production and enjoy abnormal (or super-normal) profit. While some firms are successful in their attempts to attain this hedge, most are not; large variations in profit margins, therefore, exist within the imperfectly competitive industry over the long-run. Such variations are inconsistent with the maximisation of the ‘social welfare function’; a new conception of the ‘social welfare function’ is, therefore, outlined by Knight. This conception of the ‘social welfare function’ has long been ignored by economists because it has been - and remains - classified as ‘social philosophy’.
