Book contents
- Frontmatter
- Contents
- Editors' preface
- Reintroducing The Economic Nature of the Firm
- Part I Within and among firms: the division of labor
- 1 From The Wealth of Nations
- 2 From Capital
- 3 From Risk, Uncertainty, and Profit
- 4 From The Modern Corporation and Private Property
- 5 The use of knowledge in society
- 6 Corporate governance
- Part II The scope of the firm
- Part III The employment relation, the human factor, and internal organization
- Part IV Finance and the control of the firm
- References
- References
3 - From Risk, Uncertainty, and Profit
Published online by Cambridge University Press: 05 June 2014
- Frontmatter
- Contents
- Editors' preface
- Reintroducing The Economic Nature of the Firm
- Part I Within and among firms: the division of labor
- 1 From The Wealth of Nations
- 2 From Capital
- 3 From Risk, Uncertainty, and Profit
- 4 From The Modern Corporation and Private Property
- 5 The use of knowledge in society
- 6 Corporate governance
- Part II The scope of the firm
- Part III The employment relation, the human factor, and internal organization
- Part IV Finance and the control of the firm
- References
- References
Summary
Structures and methods for meeting uncertainty
(From chapter 8)
It is therefore seen that the insurance principle can be applied even in the almost complete absence of scientific data for the computation of rates.…
…The fact which limits the application of the insurance principle to business risks generally is not therefore their inherent uniqueness alone, and the subject calls for further examination. This task will be undertaken in detail in the next chapter, which deals with entrepreneurship. At this point we may anticipate to the extent of making two observations: first, the typical uninsurable (because unmeasurable and this because unclassifiable) business risk relates to the exercise of judgment in the making of decisions by the business man; second, although such estimates do tend to fall into groups within which fluctuations cancel out and hence to approach constancy and measurability, this happens only after the fact and, especially in view of the brevity of a man's active life, can only to a limited extent be made the basis of prediction. Furthermore, the classification or grouping can only to a limited extent be carried out by any agency outside the person himself who makes the decisions because of the peculiarly obstinate connection of a moral hazard with this sort of risks. The decisive factors in the case are so largely on the inside of the person making the decisions that the “instances” are not amenable to objective description and external control.
- Type
- Chapter
- Information
- The Economic Nature of the FirmA Reader, pp. 52 - 57Publisher: Cambridge University PressPrint publication year: 2009
References
- 377
- Cited by