Prices and knowledge: A market-process perspective

108 Prices and knowledgedeliberate co-ordination, what type of co-ordination would be best,and so on. Of course, were one to start by assuming that the plannerhas superior knowledge of market conditions and opportunities, itcould follow that his intervention is desirable. But this assumption ishighly objectionable from an entrepreneurial perspective, and noplanning proposal has yet explained satisfactorily how it could bejustified.An entrepreneurial view of organizationsPrivate enterprise, in Nelson’s view, has the advantage of makingthe problems of the transmission of information and of thecomputation of solutions much more manageable for individualswith bounded rationality. In fact, the advantages Nelson attributesto private enterprise are mostly due to its being highlydecentralized. This leads to the question of why the same, or evenbetter, results could not be achieved by decentralizing a planningsystem. An answer to this question requires a prior clarification ofterminology and an outline of an entrepreneurial view oforganizations.Many economists, not only Nelson or Simon, use terms such as‘market’ and ‘hierarchy’ frequently to encompass different things.Therefore, in discussions of the relative merits of ‘markets versushierarchies’, several interpretations of the terms ‘markets’ and‘hierarchies’ are possible. 14 First, when talking about ‘markets’ thereference may be to price-mediated transactions only or also tomarket-generated hierarchies (such as firms). (Market-processeconomists generally use the term in this latter sense.) Second, anallusion to ‘hierarchies’ may refer to market or to non-markethierarchies. 15 Finally, ‘hierarchies’ could be seen as encompassing arange of organizations from highly centralized to decentralized. Withthese distinctions in mind, the following pairs of comparisons couldbe meant by ‘markets versus hierarchies’:1 Price-mediated transactions versus highly centralized non-markethierarchies.2 Price-mediated transactions versus decentralized non-markethierarchies.3 Price-mediated transactions versus highly centralized markethierarchies.