We live in uncertain environments. Uncertainty derives in good measure from the limited cognition (dispersed and specific capabilities) of different economic actors. Consequently, knowledge differences lead to division of labor and to specialization throughout the economy. A firm is that entrepreneurial organ that utilizes such division of labor and specialization to achieve some more or less well-defined ends. As such, it is akin to a biological organism that, in order to survive, must respond to different external stimuli in an appropriate fashion. Thus, a healthy firm—one that is able to create and recreate its own opportunity set—will eventually evolve (or, if you prefer, will specialize) to the point where it possesses some ‘department’ that has the specific role of dealing with this important survival function. For all practical purposes we may consider this department to be the mind of the firm. In time, the stable environment provided by a firm allows for the learning processes crucial for long-term planning, i.e., for those survival strategies necessary to deal with change.
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