KNIGHT'S “MORAL HAZARD” THEORY OF ORGANIZATION

In this paper the author suggests that besides Frank Knight's well recognized "uncertainty" explanation of the firm, he had another one. "Moral hazard" is the central feature in the second, largely overlooked theory. The author argues, and attempts to document, that this theory is not a chance excursion but is rather quite well developed by Knight. Copyright 1987 by Oxford University Press.