ABSTRACT
The contemporary mainstream theory of the firm is largely based on two works. The majority of mainstream theories draw on Coase’s 1937 paper ‘The Nature of the Firm’ but the influence of Frank Knight’s 1921 book ‘Risk, Uncertainty and Profit’ is growing. When looking back over the history of economics, Demsetz (1988a: 141) praises these two works as the only publications that have had a significant effect on economist’s view of the firm in nearly 200 years:
From the birth of modern economics in 1776-1970, a span of almost 200 years, only two works seem to have been written about the theory of the firm that have altered the perspectives of the profession – Knight’s Risk, Uncertainty, and Profit (1921) and Coase’s “The Nature of the Firm” (1937).1
Here we give brief overviews of each of these works.
