Hostname: page-component-586b7cd67f-r5fsc Total loading time: 0 Render date: 2024-11-22T16:23:41.511Z Has data issue: false hasContentIssue false
  • English
  • Français

Knightian uncertainty in non-market institutional settings: the case of democracy and nonprofit civil society

Published online by Cambridge University Press:  26 May 2021

Scott Burns ,
G. P. Manish  and
Malavika Nair
Scott Burns
Affiliation:
Department of Business Administration, Southeastern Louisiana University, Hammond, LA, USA
G. P. Manish*
Affiliation:
Manuel H. Johnson Center for Political Economy, Troy University, Troy, AL, USA
Malavika Nair
Affiliation:
Manuel H. Johnson Center for Political Economy, Troy University, Troy, AL, USA
*
*Corresponding author. Email: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

The implications of Knightian uncertainty are frequently discussed in the context of market-based institutional settings. Given money prices, entrepreneurs can engage in calculative action, in conjunction with ‘judgment’, to guide decision-making and bring about a coordination of production plans with consumer preferences. However, if the existence of Knightian uncertainty is ubiquitous and applies to all human action, then what are its implications in non-market institutional settings? This paper explores questions related to the implications of Knightian uncertainty for two important non-market institutional settings: democratic government and the nonprofit or philanthropic sector, where there is an explicit lack of monetary calculation, yet nonprofit and political entrepreneurs still must use ‘judgment’ to deal with Knightian uncertainty. For instance, what are the implications of private property and privatized cost in the case of nonprofits versus the absence of private property and socialized cost in the case of democracy, in the presence of Knightian uncertainty? Which group of ‘consumers’ is likely to have their preferences satisfied when it comes to nonprofits (benefactors or beneficiaries) and democratic government (voters or lobbyists)? The paper, thus, points to the importance of further research on the implications of Knightian uncertainty in the hard case of non-market institutional settings.

Keywords

EntrepreneurshipFrank Knightnon-market institutionsriskuncertaintyH35L5M13O31P14
Type
Research Article
Information
Journal of Institutional Economics , Volume 17 , Special Issue 6: Special Issue on the Centenary of Frank H. Knight's Risk, Uncertainty, and Profit , December 2021 , pp. 897 - 911
Copyright
Copyright © The Author(s), 2021. Published by Cambridge University Press on behalf of Millennium Economics Ltd.

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Acs, Z. and Desai, S. (2008), ‘Democratic Capitalism and Philanthropy in a Global Economy’, in Acs, Z. and Stough, R. (eds), Public Policy in an Entrepreneurial Economy, New York: Springer Publishers, pp. 281–294.CrossRefGoogle Scholar
Acs, Z. and Phillips, R. (2002), ‘Entrepreneurship and Philanthropy in American Capitalism’, Small Business Economics, 19: 189–204.CrossRefGoogle Scholar
Aligica, P. (2015), ‘Addressing Limits to Mainstream Economic Analysis of Voluntary and Non-Profit Organizations: The “Austrian” Perspective’, Nonprofit and Voluntary Sector Quarterly, 44(5): 1026–1040.CrossRefGoogle Scholar
Aligica, P. (2016), ‘Neither Market Nor State Domain: Nonprofits from the Ostroms’ Theoretical Perspective’, Nonprofit and Voluntary Sector Quarterly, 45(4S): 43–60.CrossRefGoogle Scholar
Andreoni, J. (1990), ‘Impure Altruism and Donations to Public Goods: A Theory of Warm Glow Giving’, The Economic Journal, 100(401): 464–477.CrossRefGoogle Scholar
Andreoni, J. (2006), ‘Philanthropy’, in Kolm, S.-C. and Mercier Ythier, J. (eds.), Handbook of Giving, Reciprocity and Altruism, Amsterdam: Elsevier (North Holland Publishing Co.), pp. 1201–1269.Google Scholar
Andreoni, J. and Payne, A. (2013), ‘Charitable Giving’, in Auerbach, A., Chetty, R., Feldstein, M., and Saez, E. (eds), Handbook of Public Economics, Vol. 5, Amsterdam: Elsevier (North Holland Publishing Co.), pp. 1–50.Google Scholar
Arrow, K. (1951), Social Choice and Individual Values, New York: John Wiley & Sons.Google Scholar
Barzel, Y. (1989), An Economic Analysis of Property Rights, Cambridge, UK: Cambridge University Press.Google Scholar
Battilana, J., Leca, B. and Boxenbaum, E. (2009), ‘How Actors Change Institutions: Towards a Theory of Institutional Entrepreneurship’, Academy of Management Annals, 3(1): 65–107.CrossRefGoogle Scholar
Ben-Ner, A. (1986), ‘Nonprofit Organizations: Why Do They Exist in Market Economies?’, in Rose-Ackerman, S. (ed.), The Economics of Nonprofit Institutions, New York: Oxford University Press, pp. 94–113.Google Scholar
Ben-Ner, A. and Gui, B. (2003), ‘The Theory of Nonprofit Organizations Revisited’, in Anheier, H. and Ben-Ner, A. (eds), The Study of Nonprofit Enterprise: Theories and Approaches, New York: Kluwer Academic/Plenum Publishers, pp. 3–26.Google Scholar
Boettke, P. and Coyne, C. (2008), ‘The Political Economy of the Philanthropic Enterprise’, in Shockely, G., Frank, P. and Stough, R. (eds), Non-market Entrepreneurship: Interdisciplinary Approaches, Cheltenham, UK: Edward Elgar Publishing, pp. 71–88.Google Scholar
Boettke, P. and Prychitko, D. (2004), ‘Is an Independent Nonprofit Sector Prone to Failure? Toward an Austrian School Interpretation of Nonprofit and Voluntary Action’, Conversations on Philosophy, 1: 1–40.Google Scholar
Boettke, P., Tarko, V. and Aligica, P. (2016), ‘Why Hayek Matters: The Epistemic Dimension of Comparative Institutional Analysis’, in Boettke, P. J. and Storr, V. H. (eds), Revisiting Hayek's Political Economy, Bingley, UK: Emerald Group Publishing Limited, pp. 163–185.CrossRefGoogle Scholar
Boudreaux, D. (2014), Why Government Fails and Why Ideas Matter, Washington, D.C.: Cato Institute. Retrieved from https://www.cato.org/policy-report/november/december-2014/why-government-fails-why-ideas-matterGoogle Scholar
Boudreaux, D. and Holcombe, R. (1989), ‘The Coasian and Knightian Theories of the Firm’, Managerial and Decision Economics, 10(2): 147–154.CrossRefGoogle Scholar
Brown, L., Packard, M. and Bylund, P. (2018), ‘Judgment, Fast and Slow: Toward a Judgment View of Entrepreneurs’ Impulsivity’, Journal of Business Venturing Insights, 10(c).CrossRefGoogle Scholar
Buchanan, J. and Tullock, G. (1962), The Calculus of Consent: Logical Foundations of Constitutional Democracy, Ann Arbor: The University of Michigan Press.Google Scholar
Burns, S. and Fuller, C. (2020), ‘Institutions and Entrepreneurship: Pushing the Boundaries’, Quarterly Journal of Austrian Economics, 23(3–4): 568–612.Google Scholar
Bylund, P. (2020), ‘Finding the Entrepreneur-Promoter: A Praxeological Inquiry’, The Quarterly Journal of Austrian Economics, 23(3–4): 355–389.CrossRefGoogle Scholar
Bylund, P. and Manish, G. (2016), ‘The Mises–Knight Theory of Uncertainty and Its Implications for Entrepreneurship, Equilibrium, and the Theory of the Firm’, Research in the History of Economic Thought and Methodology, 34B: 305–336.CrossRefGoogle Scholar
Bylund, P. and McCaffrey, M. (2017), ‘A Theory of Entrepreneurship and Institutional Uncertainty’, Journal of Business Venturing, 32(5): 461–475.Google Scholar
Caplan, B. (2011), The Myth of the Rational Voter: Why Democracies Choose Bad Policies-New Edition, Princeton: Princeton University Press.CrossRefGoogle Scholar
Chamlee-Wright, E. and Myers, J. (2008), ‘Discovery and Social Learning in Non-Priced Environments: An Austrian View of Social Network Theory’, Review of Austrian Economics, 21(2–3): 151–166.CrossRefGoogle Scholar
Coyne, C. and Leeson, P. (2004), ‘The Plight of Underdeveloped Countries’, Cato Journal, 24(3): 235–247.Google Scholar
Dequech, D. (1997), ‘Uncertainty in a Strong Sense: Meaning and Sources’, Economic Issues, 2(2): 21–43.Google Scholar
Dequech, D. (2000), ‘Fundamental Uncertainty and Ambiguity’, Eastern Economic Journal, 26(1): 41–60.Google Scholar
Dequech, D. (2011), ‘Uncertainty: A Typology and Refinements of Existing Concepts’, Journal of Economic Issues, 45(3): 621–640.CrossRefGoogle Scholar
DiLorenzo, T. (1988), ‘Competition and Political Entrepreneurship: Austrian Insights into Public-Choice Theory’, The Review of Austrian Economics, 2(1): 59–71.CrossRefGoogle Scholar
DiMaggio, P. (1988), ‘Interest and Agency in Institutional Theory’, in Zucker, L. (ed.), Institutional Patterns and Organizations, Cambridge, MA: Ballinger, pp. 3–22.Google Scholar
Downs, A. (1957), An Economic Theory of Democracy, New York: Harper & Brothers.Google Scholar
Elert, N. and Henrekson, M. (2016), ‘Entrepreneurship and Institutions: A Bidirectional Relationship’, Foundations and Trends in Entrepreneurship, 13(3): 191–263.CrossRefGoogle Scholar
Erler, H. (2007), ‘Legislative Term Limits and State Spending’, Public Choice, 133(3): 479–494.CrossRefGoogle Scholar
Foss, K. and Foss, N. (2005), ‘Value and Transaction Costs: How the Economics of Property Rights Furthers the RBV’, Strategic Management Journal, 26: 541–553.CrossRefGoogle Scholar
Foss, N. and Klein, P. (2012), Organizing Entrepreneurial Judgment: A New Approach to the Firm, Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Foss, N. and Klein, P. (2015), ‘Introduction to a Forum on the Judgment-Based Approach to Entrepreneurship: Accomplishments, Challenges, New Direction’, Journal of Institutional Economics, 11(3): 585–599.CrossRefGoogle Scholar
Foss, N., Klein, P. and Bjornskov, C. (2019), ‘The Context of Entrepreneurial Judgment: Organizations, Markets, and Institutions’, Journal of Management Studies, 56(6): 1197–1213.Google Scholar
Frank, P. (2008), ‘A Model of Nonprofit and Socially Motivated Entrepreneurial Behavior’, in Shockely, G., Frank, P. and Stough, R. (eds), Non-market Entrepreneurship: Interdisciplinary Approaches, Cheltenham, UK: Edward Elgar Publishing, pp. 192–205.Google Scholar
Friedman, M. (1976), Price Theory: A Provisional Text, Chicago: Aldline.CrossRefGoogle Scholar
Godley, A. and Casson, M. (2015), ‘“Doctor, Doctor…” Entrepreneurial Diagnosis and Market Making’, Journal of Institutional Economics, 11(3): 601–621.CrossRefGoogle Scholar
Haeffele, S. and Storr, V. (2019), ‘Understanding Nonprofit Social Enterprises: Lessons from Austrian Economics’, Review of Austrian Economics, 32(3): 229–249.CrossRefGoogle Scholar
Hallberg, N. (2015), ‘Uncertainty, Judgment, and the Theory of the Firm’, Journal of Institutional Economics, 11(3): 623–650.CrossRefGoogle Scholar
Hansmann, H. (1980), ‘The Role of Nonprofit Enterprise’, The Yale Law Journal, 89(5): 835–901.CrossRefGoogle Scholar
Hansmann, H. (1987), ‘Economic Theories of Nonprofit Organization’, in Powell, W. (ed.), The Nonprofit Sector: A Research Handbook, New Haven: Yale University Press, pp. 27–42.Google Scholar
Harvey, C., Maclean, M., Gordon, J. and Shaw, E. (2011), ‘Andrew Carnegie and the Foundations of Contemporary Entrepreneurial Philanthropy’, Business History, 53(3): 425–450.CrossRefGoogle Scholar
Hayek, F. (2002), ‘Competition as a Discovery Procedure (Translated by M. Snow)’, The Quarterly Journal of Austrian Economics, 5(3): 9–23.Google Scholar
Hayek, F. A. (1945), ‘The Use of Knowledge in Society’, American Economic Review, 35(4): 519–530.Google Scholar
Henrekson, M. and Sanandaji, T. (2011), ‘The Interaction of Entrepreneurship and Institutions’, Journal of institutional Economics, 7(1): 47–75CrossRefGoogle Scholar
Higgs, R. (1997), ‘Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed After the War’, The Independent Review, 1(4): 561–590.Google Scholar
Hochman, H. and Rodgers, J. (1969), ‘Pareto Optimal Redistribution’, American Economic Review, 59(4): 542–557.Google Scholar
Holcombe, R. (2002), ‘Political Entrepreneurship and the Democratic Allocation of Economic Resources’, The Review of Austrian Economics, 15(2): 143–159.Google Scholar
Holcombe, R. (2018), Political Capitalism: How Political Influence is Made and Maintained, Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Jackson, P. M. (1982). The Political Economy of Bureaucracy, Oxford: Philip Allan, p. 87.Google Scholar
Kirzner, I. (1973), Competition and Entrepreneurship, Chicago: University of Chicago Press.Google Scholar
Kirzner, I. (1982) ‘Uncertainty, Discovery, and Human Action: A Study of the Entrepreneurial Profile in the Misesian System’, in Kirzner, I. (ed), Method, Process and Austrian Economics, Lexington, USA: Lexington Books, pp. 139–160.Google Scholar
Kirzner, I. (1997), ‘Entrepreneurial Discovery and the Competitive Market Process: An Austrian Approach’, Journal of Economic Literature, 35(1): 60–85.Google Scholar
Kirzner, I. (2011), The Market Theory and the Price System, Indianapolis: Liberty Fund.Google Scholar
Klein, P., Mahoney, J., McGahan, A. and Pitelis, C. (2010), ‘Toward a Theory of Public Entrepreneurship’, European Management Review, 7(1): 1–15.CrossRefGoogle Scholar
Knight, F. (2006), Risk, Uncertainty and Profit, New York: Dover Publications.Google Scholar
Krueger, A. (1974), ‘The Political Economy of the Rent-Seeking Society’, American Economic Review, 64(3): 291–303.Google Scholar
Lachmann, L. (1956), Capital and its Structure, Kansas City: Sheed Andrews and McMeel, Inc.Google Scholar
Langlois, R. and Cosgel, M. (1993), ‘Frank Knight on Risk, Uncertainty and the Firm: A New Interpretation’, Economic Inquiry, 31(3): 456–465.CrossRefGoogle Scholar
LeRoy, S. and Singell, L. (1987), ‘Knight on Risk and Uncertainty’, Journal of Political Economy, 95(2): 394–406.CrossRefGoogle Scholar
Lounsbury, M., Gehman, J. and Glynn, M. (2019), ‘Beyond Homo Entrepreneurus: Judgment and the Theory of Cultural Entrepreneurship’, Journal of Management Studies, 56(6): 1214–1236.Google Scholar
McCaffrey, M. and Salerno, J. (2011), ‘A Theory of Political Entrepreneurship’, Modern Economy, 2(4): 552–560.CrossRefGoogle Scholar
McMullen, J. (2015), ‘Entrepreneurial Judgment as Empathic Accuracy: A Sequential Decision-Making Approach to Entrepreneurial Action’, Journal of Institutional Economics, 11(3): 651–681.CrossRefGoogle Scholar
Miller, G., Klein, P. and Nair, M. (working paper). Creative Charity: Organizing the Firm for Fostering Socially Entrepreneurial Innovation and Entrepreneurial Intelligence.Google Scholar
Mises, L. v. (1920), Economic Calculation in the Socialist Commonwealth, Auburn: The Mises Institute.Google Scholar
Mises, L. (1944), Bureaucracy, Grove City, PA: Libertarian Press.Google Scholar
Mises, L. V. (1998), Human Action: A Treatise on Economics, Auburn: Ludwig von Mises Institute.Google Scholar
Mises, L. V. (2008), Profit and Loss, Auburn: Ludwig von Mises Institute.Google Scholar
Mitchell, W. C. (1984), ‘Schumpeter and Public Choice, Part II: Democracy and the Demise of Capitalism: The Missing Chapter in Schumpeter’, Public Choice, 42(2): 161–174.CrossRefGoogle Scholar
Nair, M. and Miller, G. (2020), Technology, Transaction Costs and Civil Society. Working Paper.Google Scholar
North, D. C. (1990), Institutions, Institutional Change, and Economic Performance, Cambridge, UK: Cambridge University Press.CrossRefGoogle Scholar
Olson, M. (1982), The Rise and Decline of Nations, New Haven: Yale University.Google Scholar
Ostrom, E. (1990), Governing the Commons, Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Ostrom, E. (2003), ‘How Types of Goods and Property Rights Jointly Affect Collective Action’, Journal of Theoretical Politics, 15(3): 239–270.CrossRefGoogle Scholar
Ostrom, E. (2005), Unlocking public entrepreneurship and public economies (No. 2005/01). Wider Discussion Paper.Google Scholar
Packard, M. and Bylund, P. (2019), ‘What is Entrepreneurial Judgment, Anyway?’, Academy of Management Annual Meeting Proceedings, 2019(1): 17838.Google Scholar
Packard, M., Clark, B. and Klein, P. (2017), ‘Uncertainty Types and Transitions in the Entrepreneurial Process’, Organizational Science, 28(5): 1–17.CrossRefGoogle Scholar
Reed, R., Schansberg, D., Wilbanks, J. and Zhu, Z. (1998), ‘The Relationship between Congressional Spending and Tenure with an Application to Term Limits’, Public Choice, 94: 85–104.Google Scholar
Schumpeter, J. (1942), Capitalism, Socialism and Democracy, New York, NY: Harper and Brothers.Google Scholar
Shackle, G. (1949), Expectation in Economics, Cambridge: Cambridge University Press.Google Scholar
Shackle, G. (1961), Decision, Order and Time in Human Affairs, Cambridge: Cambridge University Press.Google Scholar
Shackle, G. (1972), Epistemics and Economics, Cambridge: Cambridge University Press.Google Scholar
Sugden, R. (1982), ‘On the Economics of Philanthropy’, The Economic Journal, 92(366): 341–350.CrossRefGoogle Scholar
Sugden, R. (1984), ‘Reciprocity: The Supply of Public Goods Through Voluntary Contributions’, The Economic Journal, 94(376): 772–787.CrossRefGoogle Scholar
Tullock, G. (1966), ‘Information without Profit’, Papers on Non-Market Decision Making, 1: 141–159.Google Scholar
Tullock, G. (1967), ‘The Welfare Costs of Tariffs, Monopolies and Theft’, Western Economic Journal, 5(3): 224–232.Google Scholar
Tullock, G. (1983), Economics of Income Redistribution, Boston: Martinus Nijhoff.CrossRefGoogle Scholar
Wagner, R. (1966), ‘Pressure Groups and Political Entrepreneurs: A Review Article’, Papers on Non-Market Decision Making, 1: 161–170.Google Scholar
Wagner, R. (2016a), Politics as A Peculiar Business: Insights from a Theory of Entangled Political Economy, Cheltenham: Edward Elgar Publishing.CrossRefGoogle Scholar
Wagner, R. (2016b), ‘The Peculiar Business of Politics’, Cato Journal, 36(3): 535–556.Google Scholar
Warr, P. (1982), ‘Pareto Optimal Redistribution and Private Charity’, Journal of Public Economics, 19(1): 131–138.CrossRefGoogle Scholar
Will, G. F. (1992), Restoration: Congress, Term Limits, and the Recovery of Deliberative Democracy, New York: Free Press.Google Scholar