`Coase vs Hayek’: Economic Organization and the Knowledge Economy

Many writers argue that economic organization is undergoing major transformation in the emerging knowledge economy; authority relations are withering; legal and ownership-based definitions of the boundaries of firms are becoming irrelevant and there are increasingly few constraints on the set of feasible combinations of coordination mechanisms. The present paper critically deals with these claims, beginning from the basic idea that they may be analysed as turning on the implications for the Coasian firm of the Hayekian notion that the distributed knowledge is a strong constraint on the use of planned coordination. It argues that there are efficiency reasons for the existence of authority under Hayekian distributed knowledge; that the increasing importance of knowledge in production does not render legal and ownership-based notions of the boundaries of the firm irrelevant; and that coordination mechanisms will also cluster in certain, predictable combinations in the emerging knowledge economy. Thus, Coasian firm organization is consistent with Hayekian knowledge conditions.