The knowledge-Based Approach and Organizational Economics: How Much Do They Really Differ? And How Does It Matter?

The knowledge-based approach and organizational economics are usually seen as offering opposing approaches to the explanation of organizational phenomena. Relying on a taxonomic framework from the philosophy of science, we argue that many differences between these approaches are more apparent than real. Thus, many insights associated with the knowledge-based approach can be reduced to organizational economics insights. However, not everything can be thus reduced. There is an important residual, comprising differential cognition, learning, and bounded rationality.

Introduction: As already stated, the relation between the KBA and OE is often seen as one of rivalry. To quote two proponents of the KBA: Our view differs radically from that of the firm as a bundle of contracts that serves to allocate efficiently property rights [i.e., OE]… Rather, we suggest that organizations are social communities in which individual and social expertise is transformed into economically useful products and services … Firms exist because they provide a social community of voluntaristic action structured by organizing principles that are not reducible to individuals (Kogut & Zander, 1992: 384).

Author: Kirsten Foss,Nicolai Foss

Source: Copenhagen Business School

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