Entrepreneurship and equilibrium

Kirzner characterizes entrepreneurship as acting to equilibrate markets, and contrasts his equilibrating view of entrepreneurship with Schumpeter's depiction of entrepreneurship as disequilibrating,19 but as the previous section suggests, whether one views entrepreneurship as equilibrating or disequilibrating depends in part on how one defines equilibrium. In Kirzner's view, an economy is in equilibrium only when there are no unexploited profit opportunities, which by definition requires an...

Predatory entrepreneurship and efficiency

Productive entrepreneurship leads resources to be allocated more efficiently. The same is not true for predatory entrepreneurship. Returning to the three person example, a majority would favor a program that provides 1 in benefits for two people while imposing a cost of 2.50 on the third. An outcome with a payoff of ( 1, 1, - 2.50) would win the approval of a majority. This example makes it clear that under majority rule, predatory entrepreneurship does not have to be efficient. Of course, a...

Entrepreneurship versus management

Entrepreneurship is the act of observing an unexploited profit opportunity, and then exploiting it. Israel Kirzner defines entrepreneurship more narrowly, as simply the act of noticing a profit opportunity that has previously gone unnoticed.1 The actions the entrepreneur takes to exploit the profit opportunity are then, following Kirzner, acts of production rather than entrepreneurship. While this book views entrepreneurship more broadly than Kirzner, there is some merit in considering...

Entrepreneurial activity as a source of entrepreneurial opportunity

As important as factors that disequilibrate the market and factors that enhance production possibilities are to the production of entrepreneurial opportunities, the most important source of entrepreneurial opportunities is the activity of other entrepreneurs. When an entrepreneur takes advantage of a previously unnoticed profit opportunity, this creates new profit opportunities, allowing other entrepreneurs to act, and the process continues cascading through the economy creating additional...

The origins of entrepreneurial opportunities

Entrepreneurship occurs when an individual acts to take advantage of a profit opportunity that presents itself in the economy. The entrepreneur's activity benefits the economy by allocating resources in a way that increases their total value to the economy's consumers. Furthermore, the entrepreneur's profit signals potential suppliers and demanders about their market opportunities, and even signals other potential middlemen of the profit opportunity for facilitating exchanges. Eventually the...

Schumpeterian and Kirznerian entrepreneurs

Israel Kirzner's book Competition and Entrepreneurship contrasted his view of entrepreneurs who equilibrate markets with Schumpeter's entrepreneurs who generate economic progress through creative destruction, disequilibrating markets. This section considers in more detail the differences between Schumpeter's and Kirzner's depiction of entrepreneurial activity. Chapter 4 argued that at least part of the difference depends upon how equilibrium is defined, but even if this terminological...

Factors that disequilibrate the market

Kirzner's emphasis on the equilibrating function of entrepreneurship naturally focuses attention on factors that disequilibrate the market. The very notion of equilibrium suggests an economy that will continue on its present path undisturbed until it is shocked out of equilibrium. Then the equilibrating forces of the market take over to put the economy back on its equilibrium path. A number of factors could disequilibrate the market. For example, preferences could change, requiring resources to...

How did twentiethcentury economics go so wrong

In developing the relationship between entrepreneurship and economic progress, this analysis has been critical of the twentieth-century equilibrium approach to economic growth. One might wonder, then, how twentieth-century economics managed to go so wrong. In fact, twentieth-century economics did not go so wrong. Rather, it developed in a direction that was not very amenable to analyzing economic progress for two understandable - and maybe even good - reasons. One reason has to do with the...

Schumpeterian and Kirznerian entrepreneurship

While in one sense the entrepreneurial activities described by Schumpeter and Kirzner are the same - especially when viewed from the vantage point of the entrepreneur - in a larger sense they are different. In both cases entrepreneurs are searching for ways to employ the resources under their control in a more profitable manner, and entrepreneurship means noticing, acting upon, and seizing these opportunities.10 But in Schumpeter's framework, one can picture an economy in Hayekian equilibrium,...

Integrating the ideas of Smith Schumpeter and Kirzner

Thinking about entrepreneurship in this way, Adam Smith's vision of an ever-increasing division of labor as the engine of economic progress can be described by integrating Schumpeter's entrepreneurs with Kirzner's. In Kirzner's model of entrepreneurship, Kirzner takes entrepreneurial opportunities as given, and describes the entrepreneur's reaction to the stock of existing entrepreneurial opportunities. While, in a sense, profit opportunities lie unseen until entrepreneurs observe them and...