The (non)Theory of the Knowledge Firm

This paper argues that the mainstream approaches to the theory of the firm do not provide a theory of the human capital based or knowledge firm. We examine the neoclassical theory of the firm, the transaction cost model, the incentive-system approach and the Grossman Hart Moore approach and argue that none of them is able to fully capture the changes to the firm that the movement towards a knowledge economy entails. We also consider the effects of knowledge on the organisation of production. Will production take place within a single large factory, or several smaller factories or even within households?