Kirzner's theory of entrepreneurship focuses on the way in which entrepreneurial discovery reallocates resources, and on the role of entrepreneurship on equilibrating markets. Kirzner has little to say about where those entrepreneurial opportunities come from that allow entrepreneurial activity to take place. Because Kirzner does not discuss it, one could envision there being a fixed stock of entrepreneurial opportunities, and as entrepreneurs discover and take advantage of them, the opportunities for future entrepreneurship are diminished. In fact, the opposite is true. Entrepreneurial discoveries lead to more entrepreneurial opportunities, so the more entrepreneurship there is in an economy, the greater will be the opportunities for future entrepreneurship.
There are three basic sources of entrepreneurial opportunities: factors that disequilibrate markets, factors that enhance production possibilities, and the effects of entrepreneurial activities themselves. Disequilibrating factors can be easily understood within a neoclassical general equilibrium framework. Changes in tastes, technologies, or available resources push the economy out of equilibrium and create profit opportunities for those who reallocate resources. Market economies typically remain close to equilibrium precisely because entrepreneur-ship reallocates resources in a stabilizing way. This is one of the important lessons Kirzner emphasizes. Factors that enhance production possibilities imply a reallocation of resources because the mix of goods and services demanded will change as income grows, and because an increase in the extent of the market will make different production techniques more profitable. This is not so apparent in a general equilibrium context because general equilibrium models often employ homothetic utility and production functions. Even when models allow increasing returns to scale, the models do not make it apparent that entrepreneurial activity is necessary to increase output more than in direct proportion to an increase in inputs. Thus, the models overlook changes in the mix of outputs and overlook the fact that more efficient production techniques can be used as markets grow.
The most important factor creating entrepreneurial opportunities, however, is the act of entrepreneurship itself. When an entrepreneur seizes on a new entrepreneurial opportunity, new market possibilities are created. If an entrepreneur creates a new product, that creates the possibility of complementary products and increases the demand for inputs into the new product (but also may reduce the demand for other goods). If an entrepreneur discovers a better process for producing an existing product, this also creates opportunities for potential input suppliers. Thus, there is not a stock of entrepreneurial opportunities that can be used up as entrepreneurs take them; rather, when entrepreneurs act on one opportunity they create additional entrepreneurial opportunities, so the more entrepreneurship there is in an economy, the more entrepreneurial opportunities will be available for others. Entrepreneurship leads to more entrepreneurship.
Entrepreneurship cannot be produced in the same way that capital goods can, but it is possible for potential entrepreneurs to create an environment within which entrepreneurial discovery is more likely. Research and development is not the same thing as entrepreneurship, but by investing in research and development, businesses can create an environment conducive to entrepreneurial discovery. Entrepreneurship then generates more entrepreneurial opportunities. This suggests that an economy can produce entrepreneurial opportunities, but in a manner very different from firms engaging in research and development. An understanding of the origins of entrepreneurial opportunities is important in its own right, as a guideline for creating economic policies that will lead to prosperity. From an academic standpoint, an inquiry into the origins of entrepreneurial opportunities helps to develop a more general theory of entrepreneurship.
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