KNIGHT,FRANK ON RISK, UNCERTAINTY, AND THE FIRM - A NEW INTERPRETATION

We attempt to interpret Frank Knight by taking him on his own terms. Among our conclusions are the following. (1) Knight's distinction between risk and uncertainty is not solely a distinction between insurable and uninsurable risk. (2) Knight's explanation for the existence of firms does not reduce to a moral-hazard theory, except perhaps in the broadest and least-interesting sense. And (3) Knight's treatment of the problem of the separation of ownership from control is not as obviously wrong as commentators have made it out to be.