Intra-firm coordination through rule-following and the emergence of hierarchy

Abstract

Rules and rule-following are becoming better understood as deci-sion-making and coordination mechanisms. Further, that hierarchy is an under-ap-preciated element of natural spontaneous, rule-based, orders has caused confusion. The article argues firstly that the ability to meld rule-following and hierarchy in one theory of the firm presents an opportunity for a possible consistent Austrian theory of the firm. The paper then proceeds to discuss how rule-following is embedded in conventional theories of the firm and how a rule-based firm can create value in the larger spontaneous order of the extended market. The paper concludes by arguing that even though conventional views around hierarchy and the giving of orders within a firm may have a role, the conventional view may be under-privileging the role of rules, rule-following and the consequent natural emergence of hierarchy.