Toward a digital transformation of the theory of the firm: Emergence as framework for organizational sustainability

Abstract

Embracing methodological individualism, the mainstream economic theory of the firm has little to say about the precarious nature of the firm's embeddedness in encompassing socioecological systems. The digital transformation of the theory of the firm can address this gap by deconstructing the standpoint of methodological individualism. In transaction cost economics, this standpoint is manifest in two assumptions about human nature, namely bounded rationality and opportunism. Drawing on Chester Barnard's insights on the firm, the present paper seeks to construct a view of organizations as emergent systems irreducible to the activities of participating individuals. By inverting the assumptions of bounded rationality and opportunism, the paper differentiates between two varieties of the emergent nature of the firm, cognitive and moral. The ideas of the cognitive and moral emergence of the firm expand the pallet of options for the firm to adapt to socioecological systems and illuminate the notion of sustainability transitions. This way, the digitally enhanced understanding of the firm offers hope for a better dialogue between the economic theory of the firm, sustainability scholarship, and business ethics.