From Uncertainty to Risk: How Firms Respond in Circular Economy Transitions

ABSTRACT The transition to a circular economy exposes firms to multiple sources of uncertainty, yet existing research largely treats these challenges as barriers rather than drivers of firm behavior. This paper develops a conceptual understanding of how uncertainty is translated into risk and how this shapes firm responses in circular economy contexts. It proposes that firms translate uncertainty into perceived risk through identifiable organizational processes, and this translation varies systematically with firms' prior experience and resource flexibility in CE ‐related activity rather than being inferred only from firms' eventual responses. Building on this perspective, the paper extends the behavioral theory of the firm by showing that in circular economy settings, risk perception is shaped across networks of interdependent firms rather than within a single firm, and that anticipated and realized risk can push firms in opposite directions. It further specifies when perceived risk leads to defensive versus proactive firm responses, based on firm experience and resource flexibility. By positioning risk as a central mechanism linking uncertainty to firm behavior, the paper offers an integrated explanation of circular economy transitions with theoretical, managerial, and policy implications.