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Guide To Internet Entrepreneurship

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Entrepreneurship and Economic Progress

Progress is the result of entrepreneurship, and both entrepreneurship and this broader conception of progress have been neglected in contemporary economic analysis. This volume develops a framework that demonstrates how entrepreneurship produces economic progress, and contrasts that framework with the mainstream theory of economic growth. The contrast is interesting from an academic perspective, but there are also significant differences in policy implications. The policy conclusions of mainstream economic growth theory focus on investment in physical and human capital and on technological improvements, whereas this volume's approach shows that an institutional structure that promotes entrepreneurship is the crucial factor that produces economic progress. Entrepreneurship and Economic Progress discusses the institutional features that promote entrepreneurship and draws on historical examples from the twentieth century to illustrate its major points. A central theme in this series is...

Foundations of Entrepreneurship and Economic Development

'Entrepreneurial activity is the key to growth and prosperity. This volume provides a detailed analysis of the role of the entrepreneur and the conditions necessary for the unleashing of its creative potential.' ''Foundations of Entrepreneurship offers a careful and scholarly look at the connections between economic freedom, entrepreneurship, and economic growth. Serious policymakers could learn a lot from its in-depth analysis.' Entrepreneurship is the key factor in economic development. It determines how quickly and accurately an economic system identifies and responds to the profit opportunities inherent in disequilibrium situations. Thus, it both generates greater coordination of economic activities at a point in time and increases the growth rate of the economy over time. This book brings to light entrepreneurship in all its aspects for the first time within a unified framework. It considers the economic, psychological, political, legal and cultural dimensions of entrepreneurship...

An Entrepreneurial Theory Of The Firm

Traditional theories of the firm have concentrated on such topics as technology, evolution, transaction costs and property rights whilst failing to account for one of the most fundamental aspects of the market process entrepreneurial activity. Using an approach consistent with the modern Austrian School, Fr d ric Sautet brings a fresh perspective to the economics of the firm by developing the open-ended theories initiated by Mises and Hayek. An Entrepreneurial Theory of the Firm makes a thorough and comprehensive enquiry into the nature of the relationship that exists between firms and markets, with separate, in-depth explorations of both the existence and inner organization of the firm. Sautet develops a model that explains the emergence of the firm in the market process as the result of entrepreneurial activity in the context of genuine uncertainty and rivalrous competition. The Austrian angle enables him to provide a theory that is both alternative and complementary to established...

Progress and entrepreneurship

Economists have been studying the factors that improve people's material well-being at least as far back as Adam Smith wrote his monumental treatise, The Wealth of Nations, in 1776, but the phenomenon of economic progress - or as it is often more narrowly studied, growth - barely predates Smith.1 Half a century before Smith wrote, economic progress would have been nearly imperceptible over a person's lifetime. Since then, economic progress has accelerated with each generation, and has manifested itself partly in income growth, but even more in new methods of production and in new types of output. Entrepreneurship has played an indispensable role in the production of economic progress. The link between entrepreneurship and progress may seem obvious, yet the connection between the two in economic analysis is tenuous, partly because mainstream economics has not done a very good job of depicting either entrepreneurship or progress. Because neither entrepreneurship nor progress is...

Policies to Encourage Entrepreneurial Activity

These days, in the public mind the archetypal entrepreneur is the owner of a small high-tech company. In his chapter, Josh Lerner reviews the motivation behind governmental efforts to finance such firms. Lerner emphasizes the complex environment in which venture capitalists operate. Small high-tech firms are inherently risky. To make matters worse, there are severe information asymmetries even when business plans are intensively scrutinized, it is difficult for investors to know for sure whether their money is being used sensibly. While various mechanisms exist to help venture capitalists deal with these problems, making the right decisions is very hard. As Lerner documents, they often pick losers. Craig Perry and Harvey Rosen examine another policy focused on entrepreneurs, this one through the federal income tax system. They note that the self-employed are allowed to deduct their health-insurance expenses while wage earners are not. The purpose of this subsidy is to induce the...

Economics and entrepreneurship

In the previous section, and throughout the book, the neoclassical model of the economy that is the well-established paradigm of mainstream economics at the beginning of the twenty-first century is criticized for failing to incorporate entre-preneurship into its framework. However, there is a substantial body of analysis in economics and in other related disciplines (especially management) that explicitly recognizes the role and importance of entrepreneurship. Much of that work is cited throughout the book, and there is much more that is not cited but that makes a substantial contribution to the understanding of entrepreneurship. Thus, it is important to clarify at the outset what, exactly, is the target of the critical comments aimed at neoclassical economics. The problem with the neoclassical framework is that by construction it does not allow any role for entrepreneurship. Despite the fact that many prominent economists have written about and recognized the crucial role for...

Entrepreneurs And New Venture Creation

A crucial question in entrepreneurship asks who the entrepreneur is and in what ways and why he is different from other individuals. An increasing number of scholars agree that opportunity recognition represents the most distinctive and fundamental entrepreneurial behavior (Stevenson & Jarillo, 1990 Venkataraman, 1997). In fact, there is wide agreement that entrepreneurs are individuals who are more likely than others to be alert to the identification and exploitation of profit opportunities (Kirzner, 1973 Low & MacMillan, 1988 Schumpeter, 1934 Shane & Venkataraman, 2000). As a result, understanding the opportunity recognition process represents one of the crucial questions for the domain of entrepreneurship. Kirzner (1973,1985) defines alertness as the entrepreneurial element in people's actions responsible for our understanding of action as active, creative, and human rather than as passive, automatic and mechanical. In particular, in his discussion of alertness, Kirzner...

The Entrepreneurial Context

Entrepreneurs do not act in a vacuum and entrepreneurial actions take place in well-defined contexts. Thus, understanding the entrepreneurial process requires that we consider the context in which entrepreneurs develop their efforts. For any individual, the entrepreneurial context consists of the knowledge required by the individual and of the set of more or less binding constraints that are a function of his social and economic circumstances. Sue Birley, for example, argues that there is no dichotomy between entrepreneurs and non-entrepreneurs with the right stimulus, the most unexpected people can become entrepreneurs (Wright, 2001, pp. 37-38). As a result, understanding the entrepreneurial context requires the understanding of what socio-economic variables provide incentives for individuals to become entrepreneurs, whether or not certain conditions are more conducive to entrepreneurial success than others, and, most important, what knowledge potential entrepreneurs possess of their...

Entrepreneurs in Unexpected Places

There is a tendency to assume that entrepreneurs carry on their innovative activities only within small businesses. The next two chapters, though, remind us that entrepreneurs operate in a variety of environments, and the policies that are appropriate for encouraging entre-preneurship may depend on the type of organization in which the entrepreneur operates. Frank Lichtenberg's chapter examines a kind of innovation that takes place primarily within large corporations. Lichtenberg notes that what distinguishes the pharmaceutical industry One of the most striking issues Lichtenberg discusses is the relationship between the market value of a firm and its investment in research and development. He notes that econometric studies of R& D indicate that firms invest more when their market value is high, other things being the same. And the market value of firms is based on the expected present discounted value of their future net cash flows. Hence, government proposals that are not even...

Entrepreneurial Firms And Strategic Decisions

The discussion of the discovery and exploitation of opportunities expands often from individuals' actions to the actions of firms and organizations. Gartner (1985, 1990) argues that entrepreneurship is about organizing and that the entrepreneurial process is more likely to be understood through the study of firms' behavior. Thus, research on the characteristics, context and actions of the individual entrepreneur leads to research into the nature, antecedents and effects of firm-level entrepreneurial activities. The identification of entrepreneurial behavior at the firm level is a difficult task though some consensus exists around the idea that entrepreneurship is a resource for the firm and, when properly exploited, contributes to the firm's profitability and competitive position. In recent years, the literature in industrial organization, strategy, and organization theory has moved from discussing how to re-engineer firms to how to re-invent them, a process in which firms are...

Entrepreneurship as mutual orientation

The Austrian school's view of economic development identifies the entrepreneurial process, a process for the mutual coordination of plans, as a key factor in the creation of wealth. The theory of entrepreneurship studies the way the multiplicity of plans of market participants get oriented to one another. It could be that among the important effects information technology is having on the new economy are direct enhancements to this mutual orientation process. Tools that support the way we orient ourselves to one another directly aid in the entrepreneurial coordination of plans, the very process the Austrian school has identified as key to economic prosperity. The realm of meaning is best seen as a public realm of expressions, especially of articulations in language. The point of subjectivism is not to turn our attention to some kind of inwardness, but to the public articulations (verbal, written, electronic, etc.) through which market participants attempt to communicate their meanings...

Entrepreneurship and Inequality

As we noted above, entrepreneurship is commonly viewed as a good thing not only because of its putative salutary effects on a nation's income, but also because of the distribution of that income. The notion is that entrepreneurship increases income mobility, particularly for minorities. But is it true This is the question investigated by Robert Fairlie in his chapter. Fairlie uses data from the 1979-1998 National Longitudinal Surveys to examine the earning patterns of young African-American and Hispanic entrepreneurs and to make comparisons to their wage-earning counterparts. He finds some evidence suggesting that young self-employed Hispanic men experience faster earnings growth than young Hispanic wage earners. Young African-American entrepreneurs experience faster earnings growth than young African-American wage earners, but the differences are not statistically significant. Fairlie finds no significant differences at all between the earnings growth of female entrepreneurs and wage...

Entrepreneurship And The Austrian Middle Ground

In a paper several years ago (Kirzner 1985a ch. 1 and fn. 9), which explicitly drew its inspiration from the Garrison thesis, the present writer applied the thesis to locating an Austrian view of the entrepreneur within the spectrum of relevant viewpoints to be found within the profession. Two opposing 'extreme' views concerning entrepreneurship were identified. One view of the entrepreneur sees him as responding frictionlessly, and with full co-ordination, to market conditions, with pure profit the corresponding reward which these market conditions require and make possible. An excellent example of this view is that provided by T.W. Schultz (1975), for whom the entrepreneur is seen as responsively and smoothly providing a needed service to the market, that of reallocating resources under conditions of disequilibrium. Because this service is valuable there is a demand curve for it. And, because the ability to deal with disequilibria is scarce, there is a supply curve with respect to...

Entrepreneurship And Macroeconomic Activity

Since Schumpeter's 1934 classic work, the study of possible linkages between entrepreneurship and economic growth has remained the domain of economists. The topic, however, has been largely ignored for a long time as neo-classical growth theory concentrated mainly on the contribution of labor and capital to the growth process (Denison, 1985 Solow, 1970). Since it did not fit in standard neo-classical systems, theorists working with analytical models neglected entrepreneurship and simply treated it as part of the residuals that cannot be attributed to any measurable productive input (Baumol, 1983, 1993a). Only recently, new growth theory has provided ways to endogenize the long-run rate of economic growth and, as a result, entrepreneurship has been considered explicitly as a form of human capital accumulation usually linked to the long run size of the firm (Bates, 1990 Iyigun & Owen, 1998 Otani, 1996 Schmitz, 1989) or as the engine for innovation and productivity increases (Aghion...

The Rediscovery of the Entrepreneur

The two attitudes just identified as plausibly responsible for the failure of modern microeconomics since the 1920s to grapple with the entrepreneurial role seem to correspond to two separate reasons that possibly have contributed to the current rediscovery of that role by economists. With the economics of general equilibrium fully developed by the 1970s, it was perhaps understandable that theorists began to turn their attention to facts that did not fit easily into the equilibrium mold. While it might have appeared an analytical virtue in earlier times to avoid concentrating on such entrepreneurially generated elements, it now became something of a theoretical challenge to do so. With general equilibrium theory considered settled territory, the analytical frontiers were seen, at least by some economists, to be situated in terrain characterized by entrepreneurial discovery, innovation, and bold speculation under uncertainty. The very irrelevance, for such activities, of traditional...

Innovation And Entrepreneurship

By contrast, under the entrepreneurial regime the agent will tend to appropriate the value of his new ideas outside of the boundaries of incumbent firms by starting a new enterprise. Thus, the propensity for new firms to enter should be relatively high in industries characterized by the entrepreneurial regime.

Entry And Entrepreneurship

A vibrant economy is an entrepreneurial economy. Entrepreneurship is vital to the economic system for at least two reasons (1) entrepreneurship, in its arbitrage function, ensures that economic actors will continually adjust their behavior to realize the mutually beneficial gains from exchange, and move the economic system to the Pareto frontier on the production possibilities frontier and (2) entrepreneurship, in its creative destruction function, ensures that not only will all least cost technologies be deployed in existing production processes, but there will be constant pressure to discover new technologies and new products to satisfy the diverse demands of consumers and thus continually push out the Pareto frontier.19 Entrepreneurial action, of both type 1 and type 2, possesses many characteristics. Entrepreneurship calls upon the human capacity to perceive and be alert to opportunities that currently exist, but are hitherto unrecognized. It also calls upon the human ability to...

Increases in investment risk for each entrepreneur translate into increases in aggregate risk

Following a decline in the real interest rate, the increase in risk holds in the aggregate as well as in the partial equilibrium settings traditionally studied by finance theory. Each entrepreneur chooses a project which is riskier than the project that would otherwise have been chosen. If each entrepreneur has a riskier position after the new investment, so does the economy as a whole. To the extent that economic sectors are dependent, the likelihood of comovement through purely stochastic shocks increases. A small but definite preponderance of positive or negative shocks across various sectors can spread and induce comovement across the economy as a whole. Projects typically are not independent in their risks but, rather, increased risk for one project adds to the risk of other projects. This result follows from the theory of capital complementarity and the importance of economic coordination (Lachmann 1978). Entrepreneurs, when making production decisions today, attempt to estimate...

Analytical conception of entrepreneurship

Entrepreneurship is connected with change, but there are many kinds of change, and correspondingly many concepts of the entrepreneurial function. Standard economic theory has developed along lines that virtually exclude the entrepreneurial role. This has largely been a result of the tendency to exclude all elements of unexpected change, to focus attention almost exclusively on equilibrium states of affairs, and to treat individual decisions as immune from the hazards of error. Taken together, these features mean that mainstream (neoclassical) economics provides a very distorted picture of the competitive market process and of the process of economic adjustment. Economic decision-makers are assumed to respond mechanistically and automatically to the signals of the market. There is no spotting a gap in the market, no exercise of initiative. Entrepreneurial characteristics are specifically excluded from the model. If it were appropriate to examine only equilibrium (market-clearing)...

Austrian Middle Ground And Entrepreneurial Error

Sometimes radical subjectivist critics seem to ascribe to middle ground Austrians the notion that alert entrepreneurs are exempt from the po ssibility of making errors they somehow have the capacity of seeing future events correctly. This is certainly not the case or, at the very least, not without careful qualification. First, the Austrian theory of the entrepreneurial equilibration process relies, as Loasby (1982 117 1989 160-1) has perceptively noted, on some entrepreneurs being more alert than others (and it is the relative unalertness of the latter which is responsible for the errors which create the opportunities and the incentives for profit). Second, the postulation of a tendency for profit opportunities to generate equilibration has not been put forward as an inexorable, determinate sequence. The emphasis upon the incentive to win profits has not been intended to deny the possibility of entrepreneurial losses. To show how entrepreneurial alertness can account for apparently...

Entrepreneur Austrians versus Homo Oeconomicus neoclassicals

Entrepreneurship is the force which plays the leading role in Austrian economic theory while, on the contrary, it is conspicuous by its absence in neoclassical economic science. In fact, entrepreneurship is a typical phenomenon of the real world, which is always in disequilibrium and cannot play any part in the models of equilibrium that absorb the attention of the neoclassical authors. Furthermore, the neoclassicals consider entrepreneurship as simply one more production factor which may be allocated in accordance with its expected costs and benefits, without realizing that, when analyzing the entrepreneur in this way, Creative entrepreneur. 4. Possibility that the actors err a priori and nature of entrepreneurial profit Pure or sheer entrepreneurial error and ex post regret exist. Pure entrepreneurial profits arise from alertness. Knowledge and information are subjective, disperse and change constantly (entrepreneurial creativity). Radical distinction between scientific knowledge...

Entrepreneurs have greater certainty about investment returns in earlier periods than in later periods

Entrepreneurs are more likely to correctly forecast consumer demands and costs for the near future, and are less likely to correctly forecast demands and costs for the far future. More generally, individuals find it harder to predict the more distant future, which is more information-sensitive. Investors can build (irreversible) hula hoop factories and immediately prosper from a current fad, but returns over time will be very risky. Hula hoops may either become an established institution or may fall out of favor completely. Undertaking risky investments may bring an immediate boom, but also creates long-run commitments which are costly to reverse. The value of the original information which motivated the investment will decay over time. Long-term commitments, even when profitable, become increasingly precarious over time.5 5 Contrary to assumption, in some cases entrepreneurs may have better information about long-run variable values than short-run values for some economic processes....

The Entrepreneur As Equilibrium And Disequilibrium Creator

The approach of Israel Kirzner (1979, 1997) brings this out very clearly. It does not only go beyond Schumpeter and provide novel avenues of analysis and novel insights. It actually provides a critical result that, in one sense, contradicts a Schumpeterian conclusion, but basically is complementary with the latter. In Kirzner's work, what distinguishes the entrepreneur is superior alertness to business opportunities. The successful entrepreneur is the one who is first to spot such opportunities and to take advantage of them. The prototype case is an opportunity for profitable arbitrage. But arbitrage has a close relation to equilibrium. An arbitrage opportunity can occur only in the absence of equilibrium because, by definition, in equilibrium all avenues for enhancement of earnings through change must have been employed to exhaustion. Moreover, arbitrage is a process that is constructed so as to move matters toward equilibrium. In other words, the side of entrepreneurship on which...

Scope For Superior Entrepreneurial Prescience

The future does not now exist, but we endeavour to grasp that future somehow in our imaginations. Some of us are more successful at this endeavour than others are. The mistakes, the errors, made by the latter, turn out to constitute the profit opportunities grasped by the more successful. In fact, it is the opportunity for profit so constituted which sparks the entrepreneurial imagination of the more prescient, the more 'alert', among human beings.14 (It is certainly not any equilibrium configuration which operates - as magnet or 'telos' - to stimulate entrepreneurial prescience, but rather entrepreneurial errors, in the form of profit opportunities, which attracts anticipatory discovery.) Once we acknowledge the meaningfulness of endeavouring to imagine the future more correctly, we can hardly refuse to recognize the quality of 'alertness' (or of more correctly fertile imagination, or of greater prescience - call it what one will) in human beings. We must, that is, recognize...

Productive And Unproductive Entrepreneurship

In my own work I have taken off from such Austrian analyses and concepts and have sought to extract further insights on the subject. Here I will summarize two of my attempts to analyze the role of the entrepreneur first the notion that societies can experience apparently autonomous outbursts of entrepreneurship and equally independent declines and near disappearance of this individual whose activities are so critical for growth. Is there an economic explanation for such developments that can perhaps enable us to do something about them, or must they be treated as fundamentally fortuitous and inexplicable events Second, I will discuss Schumpeter's observation in his later writings that the innovation process is undergoing routinization. The questions to which this view gives rise are whether it is in fact true and, if so, where it leaves the entrepreneur, whether it threatens to deprive him of his role. I begin with the first of these issues (summarizing the analysis in my book on the...

Routinization Of Innovation And The Entrepreneurs Continuing Role

My research on entrepreneurship has continued since the preceding ideas were first formulated, and the resulting later observations are contained in my most recent book (2002). The central topic of that book is the extraordinary growth record of the free market economies, and the reasons why no other form of economic organization has come close to its productive and innovative accomplishments over any protracted period of time. The relevance to the discussion here should already be clear from my previous observations on the attributes of the free market economy that apparently have contributed so substantially to the volume of activity in productive entrepreneurship. But there is much more to the story, in particular in the drive toward routinization of innovation and its implications for entrepreneurship. The story here, in brief, is that in the market economies the most visible and active forms of competition are found in oligopolistic industries, where rivals' surveillance of one...

Entrepreneurship And The Possibility Of Systematic Market Forces

We have drawn attention to the role of Misesian purposefulness in systematically overcoming uncertainty. Brief reflection should remind us that, indeed it is precisely upon the power of such purposefulness, that the central theorems of economics have, consciously or otherwise, traditionally depended. Consider the simple theorem that predicts a market tendency towards achieving a single price for a given good in a given market (usually associated with Jevons's Law of Indifference). This tendency obviously rests upon the economist's confidence in the speed and success with which entrepreneurs will pounce upon the pure profit opportunity created by any price discrepancies (which might initially be violating Jevons's Law). Now, a little reflection must surely convince us that But the rapid self-elimination of opportunities for pure profit is not at all something to be taken for granted as obvious. After all, if an opportunity that exists at a given moment in time has not yet been...

Entrepreneurial error Austrian versus ex post rationalization of all past decisions neoclassical

The very different role played by the concept of error in the Austrian and Neoclassical Schools is not usually appreciated. For the Austrians, it is possible to commit sheer entrepreneurial errors10, whenever an opportunity for gain remains undiscovered by the entrepreneurs in the market. It is precisely the existence of this type of error that give rise to pure entrepreneurial profit. On the contrary, for the neoclassicals, there are never pure entrepreneurial errors which may subsequently be regretted (regrettable errors). This is due to the fact that the neoclassicals rationalize all decisions taken in the past in terms of a supposed cost-benefit analysis made within the framework of a constrained maximization. Therefore, pure entrepreneurial profits have no reason to exist in the neoclassical world and, when they are mentioned, are considered merely as payment of the services of a production factor or as income arising from the assumption of a risk.

Entrepreneurship as arbitrage

The surest way for an entrepreneur to make profits is through arbitrage. If an entrepreneur notices that a seller is willing to sell a good for less than a buyer is willing to pay for it, the entrepreneur can buy it from the seller, and sell it to the buyer, reaping a profit and making both the buyer and seller better off as a result. Such arbitrage profits are easy to notice, tend to be small, and tend to be rapidly competed away. Nevertheless, especially in financial markets, arbitrageurs are able to make steady, and occasionally spectacular, profits. Most entrepreneurial activities involve production and time, however, and these two elements mean that when an entrepreneur acts on an entrepreneurial insight, the entrepreneur's profit is not a sure thing. Consider, for example, a person who notices that a particular type and quality of apples are selling for 0.25 each in city A, and are selling for 0.50 in city B. Further assume that apples can be transported from city A to city B...

Antecedents to the entrepreneurialdiscovery approach

The modern Austrian theory of entrepreneurship has its origins in the works of Mises and of Hayek. 'From Mises the modern Austrians learned to see the market as an entrepreneurially driven process. From Hayek they learned to appreciate the role of knowledge and its enhancement through market interaction, for the equilibrative process' (Kirzner 2000 11 emphasis added). Mises emphasised the dynamic and entrepreneurial character of the market process. He saw the market process as generated by the actions of profit-seeking entrepreneurs who operate in a radically uncertain world The driving force of the market process is provided neither by the consumers nor by the owners of the means of production land, capital goods, and labour but by the promoting and speculating entrepreneurs. These are people intent upon profiting by taking advantage of differences in prices. Quicker of apprehension and farther-sighted than other men, they look around for sources of profit. Profit-seeking speculation...

Entrepreneurship In The Literature

In this section we will provide an overview of the three main views of the notion of the entrepreneurial process Schumpeter's view of the entrepreneur as innovator, Kirzner's notion of entrepreneurship as arbitrage and the view of entrepreneurship in history as one of betting on ideas.1 In considering each of these views, we will pay particular attention to the implications of the institutional environment on the particular notion of entrepreneurship.2 Before considering Schumpeter's notion of entrepreneurship and economic development, it is important to clarify his view of the market and his understanding of the capitalist system - his characterization of capitalism is directly tied to the role the entrepreneur occupies within it. While rejecting the widely accepted view of the market as a perfectly competitive construct, Schumpeter couched his analysis in an initial state of general equilibrium.3 He viewed the market process as a dynamic process driven by creative destruction It...

The Incentive for Entrepreneurial Discovery

Were entrepreneurship a scarce resource in the usual sense, economists would have no difficulty in spelling out, at least in general terms, the kinds of incentives capable of coaxing out the desired quantity of entrepreneurial discovery. Potential entrepreneurs would have to be offered rewards that more than offset the costs of exercising entrepreneurship, This, after all, is how economists understand the role of incentives this is how the price system is perceived to offer, via the resource market, the incentives required to stimulate resource supply and to allocate it among alternative uses. But the special aspects of cntrepreneurship render this kind of incentive system inappropriate to entrepreneurial alertness and discovery. Since entreprcneurship is costless (no incentive at all is needed, in principle, to activate entrepreneurial vision), and since on the other hand entrepreneurial vision is not uniformly and continuously switched on to take advantage of all opportunities, we...

Institutions As Cause Entrepreneurship As Consequence

Having concluded that the entrepreneur is indeed the prime driver of economic progress within a certain institutional framework, we now turn to a survey of the literature on entrepreneurship in the developing market context. In these contexts, the institutions within which economic actors transact are undergoing a process of transformation. As discussed, it is widely agreed that the incentive structure influences the action of economic agents. This allows us to rule out such considerations as the availability of technological knowledge, the population level, migration, etc. as factors which can serve to explain the differences in wealth across countries (Olson, 1996). Instead, we can focus on the institutional environment and consider its influence on economic activity.14 The two most important core institutions for encouraging entrepreneurship are well-defined property rights and the rule of law. It is well established that those countries where these core institutions are developed...

The process of entrepreneurial discovery

Entrepreneurial discovery is depicted by Israel Kirzner as the costless act of noticing a profit opportunity, in contrast to William Baumol who depicts technological advancement as the result of the intentional investment decisions of profit-maximizing firms.12 As Baumol describes it, entrepreneurial insights of the type Kirzner discusses are becoming increasingly rare as firms create bureaucra-tized research and development programs that produce innovations in the same way that firms produce other products. These two views lie at the extremes as models of entrepreneurial discovery. For Kirzner, the entrepreneur just notices a previously undiscovered profit opportunity, whereas Baumol argues that entrepreneurial actions have a minimal effect on economic progress compared to the routinized research and development activities of firms. In fact, the process of entrepreneurial discovery is a combination of both of these extremes. There is more to entrepreneurship than just noticing that a...

Under Entrepreneurial Incentive

How do alternative socioeconomic systems appear likely to perform in terms of this kind of incentive We will consider a free market economy, a centralized (socialist) economic system, and a regulated market economy. Our concern is solely with the comparative scope they hold for entrepreneurial incentives. The free market is characterized most distinctively, for our purpose, by freedom of entrepreneurial entry, Given some accepted system of property rights, individual participants are free to enter into mutually beneficial trades with each other. Production decisions involve judgments about buying inputs on factor markets in order to sell output in product markets. Market prices therefore guide the decisions which determine the allocation of society's resources among alternative lines of out What is important about the market economy is that unexploited opportunities for reallocating resources from one (low market valued) use to another of higher value offer the opportunity for pure...

The environment for entrepreneurial discovery

The environmental factors that foster entrepreneurship might be broken down into three components. First, there are those aspects of the economic environment that produce profit opportunities second, there are those aspects of the environment that make it easier to recognize those profit opportunities that exist and third, there are those aspects of the environment that create the incentive for entrepreneurs to act on those profit opportunities they spot. A complete understanding of the entrepreneurial process requires a recognition of both the way in which the economic environment generates entrepreneurial opportunities and invites entrepreneurs to take advantage of them, and the way that entrepreneurs themselves act to increase the chances that they will make an entrepreneurial discovery. Some aspects of the environment that produces entrepreneurial opportunities are income growth, technological developments, and the actions of other entrepreneurs. Income growth creates...

The Role Of The Entrepreneur In Capital Formation

We wish here to point to a flaw concerning the role of the entrepreneur in the capital goods market. As we already indicated above, Walras expressed market clearing for goods and services by using the symbols O and D in a twofold sense.8 Likewise we may distinguish between quantities of new capital proper demanded and supplied and between amounts of savings demanded and supplied. E in subsystem III is to be interpreted as the demand for capital in an unspecific form. Walras speaks in this connection of num raire capital (El ments, Section 235). At the same time it is supplied in order to be converted into capital proper of the various types. The conversion is expressed in subsystem VII hence E in subsystem VII has to be considered as a quantity supplied and therefore the quantities of new capital proper in this subsystem are quantities demanded. Finally, the quantities of new capital proper in subsystem IV are quantities produced and offered by entrepreneurs. So, as a result of the...

Competition and entrepreneurship

Israel Kirzner's book with the same title as this section, offers a theory of the competitive process as an alternative to the neoclassical theory of competition which depicts competition as an equilibrium outcome. The neoclassical model of competition depicts an economy already at equilibrium, with no profit opportunities for firms. The only role for firms is efficient management. If a competitive market is not at an equilibrium, how would it get there Kirzner answers that entrepreneurs notice unexploited profit opportunities that firms can act on, leading markets to equilibrium. Entrepreneurs serve this equilibrating function in response to any factors that might disturb a market equilibrium. Yet, more along the lines of Schumpeter, entrepreneurs must also be innovators, and must find new and improved types of output, and new and improved ways of producing their output, to survive. The competitive process is the force that propels economic progress, and because the competitive...

Entrepreneurship Judgment and Asset Ownership

Entrepreneurs are the founders and developers of business firms. Indeed, the establishment of a new business venture is the quintessential manifestation of entrepreneurship. Yet, as Foss and Klein (2005) point out, the theory of entrepreneurship and the theory of the firm developed largely in isolation. The economic theory of the firm emerged and took shape as the entrepreneur was being banished from microeconomic analysis, first in the 1930s when the firm was subsumed into neoclassical price theory (O'Brien, 1984) and again in the 1980s as the theory of the firm was restated using game theory and information economics. Modern contributions to the theory of the firm (Williamson, 1975, 1985, 1996 Milgrom and Roberts, 1992 Hart, 1995) mention entrepreneurship only in passing, if at all. Foss and Klein (2005) show how the theory of entrepreneurship and the theory of the firm can be linked using the concept of entrepreneurship as judgment.1 This view traces its origins to the first...

The entrepreneur in the earlier Austrian tradition

It is well known that it was only in the course of the marginalist revolution that economists came to recognize an analytically distinct role lor the entre preneur. In classical economics - or at least in its dominant British version there was simply no distinct entrepreneurial function. It was the capitalist upon whom, it appears, the economists implicitly relied to assure fulfilment of the tasks we generally consider to be entrepreneurial. The profit share of income earned by the capitalist, in classical economics, corresponded mainly in fact to what neoclassical economics was to identify as interest on capital. For the classical economists there was no pure entrepreneurial profit, because for them there was no pure entrepreneurial role. It was in the Course of the neoclassical development of the theory of the market that economists caine recognize the importance of the function played by the entrepreneur who acquires all the resource services - including those of capital in ordei...

Entrepreneurial coordination Austrian versus general andor partial equilibrium neoclassical

The models of equilibrium of the neoclassical economists usually ignore the coordinating force that entrepreneurship has for the Austrians. In fact, this force not only creates and transmits information but, more importantly, also drives the coordination between the unadjusted behaviors of agents in society. Effectively, all social discoordination materializes in an opportunity for gain which remains latent until it is discovered by the entrepreneurs. Once the entrepreneur realizes that the profit opportunity exists and acts to take advantage of it, it disappears and there is a spontaneous process of coordination, which explains the trend towards equilibrium that exists in any market economy. Moreover, the coordinating nature of entrepreneurship is the only factor which makes it possible for economic theory to exist as a science, understood as a theoretical corpus of laws of coordination which explain the social processes.13 This approach explains why the Austrian economists are...

The Role of the Entrepreneur

Economic calculation. The data of the market. Factors and means of production. Comparative cost. Marginal utility. Diminishing returns. The time factor. Risk. We have seen that the market is the pivot around which the whole of economic life revolves. We can say just as well that the market revolves around the entrepreneur. The entrepreneur is the person, natural or juristic (i.e., individual or collective), who enters the market with the object of making a profit, that is to say, of getting more than he gives. In this sense, all those who go to the market are entrepreneurs, buyers as well as sellers, since anyone who buys a cow for two hundred dollars does so because he considers that, for him, the cow is worth more than the money he pays for it. Otherwise he would keep his two hundred dollars. However, in economics one who enters the market in order to obtain what he needs for his own use is not called an entrepreneur, but a consumer. Strictly speaking, the...

Entrepreneurship And The Generation Of Knowledge

The discussion so far has suggested that the problem of the division of knowledge and the mechanisms for the transmission of knowledge, so famously associated with Hayek and Kirzner, constitutes one side (albeit a very important one) of the significance of knowledge for economics. If it is indeed useful to explore the economics aspects of the generation of knowledge, part of that exploration would seem to suggest broadening the scope of the role of the entrepreneur in the market process beyond alertness to price differentials.14 One implication of a knowledge-generating perspective is that the discovery and elimination of error no longer constitutes the only relevant aspect of entrepreneurial activity. Instead, the theory of entrepreneurship also refers to the inherent capacity of individuals to create knowledge - Hayekian interpretations or Popperian conjectures - about their environment as it was, as it is, and also as it might be. When we view the market process as one which,...

Entrepreneurship and the invisible hand

The invisible hand concept arises from the incentives that are provided in a market economy for efficiency-enhancing actions, but those actions can be divided into two different categories. In one category are the maximizing actions that are a part of neoclassical economics - the management that was discussed in Chapter 3, along with maximizing behavior on the part of consumers. The other category consists of entrepreneurial actions. In the neoclassical framework, individuals maximize utility by allocating their endowments (which in a production economy includes their labor and human capital) over a given opportunity set. Firms maximize profits by choosing the optimal quantity and mix of inputs that will be combined in a production function to generate output. Profit maximization for firms must be a shorthand description, because firms do not act as independent entities. Rather, people act. In a neoclassical setting, profit maximization means that the firm's decision-makers choose the...

Market Demand As Seen By The Individual Entrepreneur

To the individual entrepreneur operating a firm in an industry, the relevance of market demand does not hinge directly on the relation between market price and the quantity that the market as a whole will seek to buy. For him market demand is relevant only as it relates to the quantities that the market will buy of his product, and to the prices that he may charge, other factors remaining unchanged. He is interested, in other words, in the different alternatives the market as a whole might present to him as a result of alterations by him in the alternatives that he presents to the market. It is clear that the alternatives the market as a whole presents to any one entrepreneur, in response to a given price posted by him, depend on a number of factors besides the shape of the market demand curve, or its elasticity in the neighborhood of this price. The quantities of a commodity that the market will seek to buy altogether at a given market price depend, we have seen, on a number of...

Entrepreneurship and knowledge

Entrepreneurship is a creative activity. As such, it may not be possible to describe what entrepreneurs do. As William Baumol notes, One can, indeed, describe what entrepreneurs used to do, but simply by virtue of having been reported in detail such an act is transformed into one that is no longer entrepreneurial.1 Baumol's remark offers a number of insights. Accepted at face value, it suggests that after entrepreneurial acts have been undertaken, others can, through analysis of those acts, convert them to managerial acts. Brilliant and original entrepreneurial insights then evolve to become a routine part of business operations. Probing deeper, this suggests that a component of economic progress is taking entrepreneurial insights and making them into a part of the routine activity of businesses.2 But where do these entrepreneurial insights come from in the first place According to Kirzner, entrepreneurs uncover profit opportunities that previously went unnoticed,3 but this does not...

Can entrepreneurship be produced

As Kirzner defines entrepreneurship, the entrepreneurial act itself is costless, and uses no resources. It is simply the act of noticing what nobody has noticed before. But people can invest resources into activities to make it more likely that they will make an entrepreneurial discovery. Research and development activities are not entrepreneurship, but R& D creates an environment within which entrepreneurial opportunities are more likely to present themselves. Research and development generates information, which can add to knowledge. Within a neoclassical framework, where things are produced by combining inputs in a production function, research and development is undertaken by combining land, labor, and capital, to produce technological change. The successes attributable to investment in research and development are indisputable, but R& D expenditures cannot be the whole story, because once the research is done, the results need to be applied to make production less costly,...

Pure Profit And The Entrepreneurial Role

The problematic nature of pure profit is mirrored, of course, in the problematic nature of the entrepreneurial function itself. From the perspective of conventional economic theory this function is a notoriously elusive one. The entrepreneur assembles all the productive services needed to produce a product. He assumes the cost represented by the market values of all these services and receives the market value of the produced output. He retains whatever surplus remains, as pure entrepreneurial profit (or, if the residual is negative, he suffers entrepreneurial loss). But in stipulating that he assumes the costs embodied in the market value of all productive services needed for the product, we of course mean to include also all those services provided by the entrepreneur himself which could, in principle, have been hired in the marketplace. His labor services and the services of the assets he owns could have been provided from the outside. In identifying the peculiarly entrepreneurial...

Ignorance Error And Entrepreneurial Opportunities

Surely our justification for asserting the existence of a tendency for the prices of identical articles to converge rests on our understanding that the imperfection of knowledge (on which one must rely in order to account for the initial multiplicity of prices) reflected, at least in part, sheer error. We understand, that is, that the initial imperfection in knowledge is to be attributed, not to lack of some needed resource, but to failure to notice opportunities ready at hand. The multiplicity of prices represented opportunities for pure entrepreneurial profit that such multiplicity existed, means that many market participants (those who sold at the lower prices and those who bought at the higher prices) simply overlooked these opportunities. Since these opportunities were left unexploited, not because of unavailable needed resources, but because they were simply not noticed, we understand that, as time passes, the lure of available pure profits can be counted upon to alert at least...

Some Leading Theories Of Entrepreneurial Profit

It will be useful, both for its own sake and as preliminary to our own theory of profit, to provide a brief review of the principal economic theories of entrepreneurial profit developed during the heyday of entrepreneurial theorizing (1890-1920).3 The several major approaches we shall identify attest to the intense interest displayed by the early neoclassical economists in the pure profit concept and in the entrepreneurial role. This contrasts sharply with the virtual silence on these matters which characterized the subsequent halfcentury of economic thought. We shall identify what we believe to be weaknesses in these approaches but also point out the valuable insights contained in them. Wherever possible, we shall take note of the possible implications which these theories hold for the ethical evaluation of pure profit. temporarily lower than their new, higher, static level, leaving a profit margin between output value and production costs, which the entrepreneur is able to grasp....

Information wisdom and the process of entrepreneurship

Entrepreneurship creates new entrepreneurial opportunities, but how do entrepreneurs gain the knowledge to spot those opportunities once they are created In a static setting, because there is little change, there will be relatively little in the way of entrepreneurial opportunities. Those opportunities that might be lying in wait must be relatively obscure to have remained unnoticed, and the static environment precludes the creation of new opportunities. Schumpeter, discussing a framework in which all profit is competed away in equilibrium, and in which profit is the return to entrepreneurship, observed, Without development there is no profit, without profit no development.15 Economic progress relies on an economy that is not in neoclassical general equilibrium to generate the profit opportunities necessary for development to occur. A key question is, where do potential entrepreneurs get the knowledge to utilize information about entrepreneurial opportunities As noted in Chapter 4,...

Entrepreneurship in the Market

Our examination of the entrepreneurial element in individual action permits us to see the role of entrepreneurship in the market in a fresh light. We shall discover, in the market context, elements that correspond precisely to their analogues in the individual context. Let us consider what happens in markets. In a market, exchanges occur between market participants.32 In the absence of perfect mutual knowledge, many of the exchanges are inconsistent with one another. Some sales are made at low prices when some buyers are buying at high prices. Some market participants arc not buying at all because they are unaware of the possibility of buying at prices low enough to be attractive some are refraining from selling because they are unaware of the possibility of selling at priccs high enough to be attractive. Clearly the actions of these buyers and sellers are, from the perspective of omniscience, uncoordinated and inconsistent. We notice that, although the assumption of perfect knowledge...

The causal link between personal agency beliefs and entrepreneurial alertness

We are now in a position to pull together the various threads that have been spun in this chapter. The basic point is that the nature of people's personal agency beliefs (i.e. their LOC and self-efficacy beliefs) is a major factor determining their level of entrepreneurial alertness the more strongly individuals believe that economic outcomes depend largely upon their own actions in a particular domain (rather than on outside factors, such as luck and powerful others), and the more strongly they believe that they can perform those critical actions successfully, the more heightened will be their alertness and the higher the level of spontaneous learning that they will exhibit. An advantage of the two psychological constructs, Rotter's notion of LOC and Bandura's concept of self-efficacy, is that they can be linked analytically to Kirzner's economic concept of entrepreneurial alertness. As discussed earlier, empirical psychological studies have shown that entrepreneurs have a high sense...

Wisdom and entrepreneurship

A view that opportunities for entrepreneurial insights are produced exogenously and lie in wait for entrepreneurs to notice them would be fundamentally misleading. Furthermore, it would be misleading to think that at any point in time there is an abundance of entrepreneurial opportunities that are unnoticed, waiting to be discovered. Entrepreneurial opportunities constantly arise in a growing economy, and when they do they are, except in rare circumstances, rapidly acted upon. Entrepreneurial insights are produced in the process of economic advancement. More rapid advancement brings more entrepreneurial opportunities, and more entrepreneurial opportunities produce greater incentives for potential entrepreneurs to become more alert to them. The actions of entrepreneurs add to the knowledge base of potential entrepreneurs, so entrepreneurship generates more entrepreneurship. In contrast, a stagnant economy blunts the incentives for entrepreneurial activity, and can remain stagnant...

Time Uncertainty and Entrepreneurship

My analogy between entrepreneurship at the level of the individual and entrepreneurship in the market emphasized only the most salient respects of the analogy. Certain additional features of the entrepreneurial function in the market need to be dealt with more extensively. In the individual context the divergence (which it is the function of entrepreneurship to limit) was a divergence between anticipated and realized future. Its source in uncertainty was immediately apparent. In the market context the divergence (which it is the function of en- My statements concerning market en trepreneurship were couched in terms of the market for a single commodity within a single period. It should be clear that nothing essential is lost when our picture of the market is expanded to include many commodities and, in particular, the passage of time. This should of course not be understood to mean that the introduction of the passage of time does not open up scope for additional insights. I merely...

Entrepreneurship And Design Standards

If entrepreneurship is about making connections, then competitive success may depend upon setting up systems within which it is more difficult for other entrepreneurs to make connections that one is capable of making. This process is obviously at work in some markets, where even though products take the form of modules that can be combined in different combinations, the interfaces between them are specific to the brand in question. The specifics of Canon and Minolta camera and lens relationships provide an example here, as do Apple Macintosh computers versus PCs. However, there are also many cases - the IBM PC being one of them - in which entrepreneurial insight takes the form of setting out to create a set of open standards to enable other entrepreneurs to make money by selling products that hook up with one's own and in the process generate demand for one's own product. Sometimes the creation of common interfaces between modular products will be necessary in order to remove...

Where Entrepreneurship Stops And Management Begins

The view of the entrepreneur proposed in this paper needs to be considered in relation to the roles of strategists and other managers in firms, for clearly it is not a viewpoint that applies merely to the start-up phase of business. It can be used to frame decision making in firms of diverse sizes and stages of evolution. It can be applied to the founding of a business, where the entrepreneur construes that there is money to be made by making a particular connection, such as between product elements to form a new product or system, or between potential customers with a particular unmet need and various presently under-utilized resources that can be combined to meet that need. It can be applied further, to making sense of the growth of a business via relationships with customers and or linkages between past products and ones subsequently added to the firm's portfolio. These linkages may be within the supply chain of what the entrepreneur's business already produces, where vertical...

Entrepreneurs and institutions

Schumpeter's research interest at the time focuses on the role of innovations which he regards as having two main effects they lead to a reorganisation of the production structure in the economies concerned, and they provoke a series of disequilibria whose nature Schumpeter studies more closely in Business Cycles (BC) (1939). The next step consists of explaining the conditions under which innovations take place by reference to the role of the 'captains of industry' -that is, of entrepreneurs, whose activities require, in turn, the existence of certain institutions that replace the conventional coordination mechanisms of the competitive Walrasian market. circular flow. In accordance with the principles of methodological individualism, Schumpeter takes a view of the agent as an endogenous factor in the emergence of innovations (1912 1934 106). What is needed, therefore, is an analysis of the entrepreneurs or, more specifically, of the nature of the entrepreneurs' economic behaviour and...

Conclusion Entrepreneurship In A Globalizing World

The connectionist perspective on entrepreneurship is sharply at odds with how mainstream economists are driven to view the theoretical place of entrepreneurs in the modern world of globalization, a viewpoint that leads them to favor particular policies aimed at fostering it by making entrepreneurial activity more attractive to undertake. From the field perspective, the world is increasingly a place in which competition may come from any quarter, limiting scope for the earning of supernormal returns. The removal of barriers to parallel importing enables entrepreneurs who spot opportunities for arbitrage anywhere in the world to constrain the ability of manufacturers to practice price discrimination between markets. Aided by internet search engines, consumers can choose in an informed manner with unprecedented ease and source their purchases from anywhere on the planet that offers the best deal. The same applies to the allocation of investment funds in a world of electronic share...

Entrepreneurial Profit and Loss

In previous chapters, we analyzed the formation of prices in an unhampered, evenly rotating economy. Now we seek to understand the movement of prices in an economy in which the future is not certain. The primary difference is that in the real world (unlike the ERE), the marginal value products of productive factors must be estimated by the capitalist-entrepreneurs at the time of hire. There is always the possibility of erroneous estimates, and hence the possibility of profit and loss. Entrepreneurial profit occurs when someone buys factors at a certain price and sells the resulting product for a certain price, such that he reaps a higher rate of return than the prevailing rate of interest. Such an entrepreneur has taken advantage of a general undervaluation of the particular factors had others generally been aware of the future sale price of the product, they too would have entered into this market (to earn the higher rate of return). Entrepreneurial loss entails the opposite, in...

The Similarity of Entrepreneurship and Imagination

Professor Kirzner has developed with great clarity and insight the concept of entrepreneurship implicit in the work of Mises, and has argued that this concept is missing from the neoclassical (or Anglo-American) discussion of individual decision-making exemplified by Lord Robbins. According to Kirzner, Robbinsian formulations of the economic problem are centered around the concept of economizing. Economizing is the allocation of given (scarce) means to achieve as far as possible a set of given (competing) ends. Kirzner finds this analytical vision misleadingly incomplete. He proposes instead the broader concept of human action developed by Mises, which incorporates not only economizing but also an element of alertness to new opportunities which he calls enterpreneurship. Now I choose to label that element of alertness to possibly newly worthwhile goals and to possibly newly available resources which we have seen is absent from the notion of economizing but very much present in that of...

The Entrepreneurial Process

The term entrepreneurial process has come to possess two rather distinct, although interrelated, meanings The two meanings are (1) the process of entrepreneurial competition responsible, in the short run, for the tendencies for the market price of each commodity or input to move toward the respective market-clearing level, for the array of outputs to reflect the pattern of consumer preferences in the light of currently available technological possibilities, and for pure profit opportunities to be ground down to zero and (2) the process of entrepreneurial discovery, invention, and innovation through which long-run economic growth is stimulated and nourished. The first kind of entrepreneurial process (short-run) is seen as responsible for a continuous tendency toward economic balance and internal economic consistency. The second (long-run) achieves a continual series of steps that together propel the engine of long-run economic growth and development. The second kind of process is the...

Difference between Entrepreneurship and Imagination

Nevertheless, if we probe further to see whether entrepreneurship and imagination are held to be precisely identical, we find they are apparently not. There is one fundamental difference that is emphasized repeatedly. For Kirzner, entrepreneurship is the discovery of something existing for Shackle, imagination is the creation of something new. Thus, Kirzner refers to unexploited opportunities which have a prior existence the Kirz-nerian entrepreneur responds to existing tensions and provides those corrections for which the unexploited opportunities have been crying out.20 Shackle, on the other hand, associates imagination with originality imagination generates a beginning in the extreme sense in which we imply two states of affairs, one in which the originated thing is not present, and one later in time in which it is present. 21 It seems to me that there are (at least) three possible interpretations of the distinction between entrepreneurship and imagination as defined by Kirzner and...

Entrepreneurship and the Market Approach to Development

It is beginning to be realized that the vast literature on growth and development conceals a yawning gap. This void refers to an understanding of the role of the entrepreneur in economic development, both at the theoretical level, and at the level of past and prospective economic history. The entrepreneur, Professor Baumol remarks , has virtually disappeared from the theoretical literature, In a penetrating essay on the entrepreneur's role in economic development, Professor Leibenstein discovers that received theory of competition gives the impression that there is no need for entrepreneurship.2 In the literature dealing more narrowly with growth models3, this hiatus is almost complete and hardly surprising in view of its predominant concern with macroeconomic relationships. In contrast, the literature dealing with development proper gives some attention to entrepreneurship, although little effort has been devoted to formulating a clear theoretical understanding of the entre- (2) H....

New Adaptations In Austrian Economics Entrepreneurs And Firms

Unlike Schumpeter and the neo-Schumpeterian writers, the Austrian school of economics considers the uncertainty and subjectivity of individual knowledge as key features of economic action (cf., e.g. O'Driscoll & Rizzo, 1985). Different agents hold different expectations. The coordination of these expectations is particularly important if the subjective knowledge underlying the expectations, and thus the expectations themselves, change (cf. Lachmann, 1977). Coordination is achieved in different ways in markets and organizations. However, although in the Mises-Kirzner approach to entrepreneurship coordination within markets is considered a result of entrepreneurial action, coordination within firm organizations is not considered at all. Indeed, even the idea of a subjectivist, entrepreneur-centered approach to organizational economics in general, and the theory of the firm in particular, has until recently been ignored in the Austrian camp. Given that the very creation of a firm...

Is knowledge entrepreneurship

The answer to the question that heads this section obviously is no yet economic models of growth and development often make the leap of assuming that if the knowledge of entrepreneurial opportunities is available to individuals, they will use that knowledge to be entrepreneurial. Without appropriate underlying institutions, this will not be the case. Chapter 8 considers in detail the conditions that lead people to act entrepreneurial, but it is important to see that the mere generation of knowledge is insufficient to produce entrepreneurship. Thus, economic models that focus on, for example, the production of research and development or the incorporation of technology into an economy leave out an important step. One of the assumptions underlying the neoclassical model of perfect competition is that everyone in the economy has perfect knowledge about all economic opportunities.16 This assumption rules out the possibility that any unrecognized profit opportunities could exist in the...

Complex Decision Making And The Entrepreneur

Scientific models simplify conditions in order to help us understand complex relationships. Economic models like the price-taker and price-searcher models are no exception. But these models leave out some important elements of the business decision-making process. Furthermore, they gloss over the complexity of other decisions that must be made by real-world entrepreneurs. Will profits increase if prices are raised (or lowered)' To get an ansv. er to this question, real-world business decision makers cannot go into a back room and look at a demand-cost diagram. Instead, they must search for clues, experiment with actual price changes, and interpret what they see, often using a great deal of seat-of-the-pants judgment. Our model doesn't reveal precisely how this is done, but it highlights the fact that entrepreneurs are strongly motivated to find the profit-maximizing price. Those that are most successful will at least approximate this objective, and the outcome will be as if they had...

Does research produce entrepreneurship

When one looks at the entrepreneurship that occurs in high-tech areas such as medical care, pharmaceuticals, and electronics, it is apparent that entrepreneurial insights are more likely to come to individuals who have an intimate knowledge of the area. It is unlikely that a baker will stumble across a better method for etching circuits for electronic devices, or that an auto mechanic will discover a more effective medication for lowering cholesterol. Of course, the baker and the auto mechanic have their own specific knowledge of time and place, but the point of picking high-tech examples is to illustrate that while entrepreneurship is not directly produced by knowledge, knowledge is a key ingredient in the production of entrepreneurial insights. Without knowledge, how could one recognize whether the opportunity to take some action was likely to result in profit Furthermore, marketing research can aid entrepreneurs in identifying the most promising ideas, and tailoring their offerings...

Two categories of entrepreneurial opportunities

This example of the graphical user interface for computers illustrates that entrepreneurial opportunities can be divided into two categories. Some opportunities might arise as a result of the innovative activity of the potential entrepreneur, making the innovator the only one who is in a position to observe the existence of the opportunity. The people at Xerox could have, had they been more entrepreneurial, recognized that they had a good idea for a computer interface, and implemented it in a profitable product, or sold the idea to another company. As the innovator, they had the first chance to seize the entrepreneurial opportunity from their innovation. Xerox did try to market some products based on their graphical user interface, but were unable to market a profitable product. This illustrates how difficult it is to spot the actual profit opportunity. It was not simply producing a computer with a graphical user interface, as Xerox did with the results of its research, but rather a...

The theory of entrepreneurial discovery

The theory of entrepreneurial discovery is the most widely accepted conception of entrepreneurship among market-process theorists. In line with the broader research programme within which it is embedded, this approach is distinguished by its focus upon the nature of competitive processes, market disequilibria, the role of knowledge, expectations and learning in the operation of markets, the nature and significance of entrepreneurial discovery, and the comparative effectiveness of alternative institutional frameworks for evoking entrepreneurship. Kirzner's scientific contributions on the entrepreneurial function and the institutional conditions for economic development are central to a more sophisticated understanding of entrepreneurial capitalism and the dynamic adjustment processes that coordinate economic activities in market economies.1 His entrepreneurial theory of market processes supplies the 'disequilibrium foundations of economic analysis' (Boettke and Rizzo 1995 xiv). It can...

Role of Entrepreneurs and Other Innovators

It will be helpful to distinguish between entrepreneurs and other innovators Entrepreneurs Recall that the entrepreneur is an initiator, innovator, and risk bearer the catalyst who combines land, labour, and capital resources in new and unique ways to produce new goods and services. In the past a single individual, for example, Hart Massey in farm machinery, Henry Ford in automobiles, and Levi Strauss in blue jeans, carried out the entrepreneurial role. Such advances as air conditioning, the ballpoint pen, cellophane, the jet engine, insulin, xerography, and the helicopter all have an individualistic heritage. But in today's more technologically complex economy, entrepreneurship is just as likely to be carried out by entrepreneurial teams. Such teams may include only two or three people working as their own bosses on some new product or idea, or it may consist of larger groups of entrepreneurs who have pooled their financial resources. Other innovators This designation includes other...

Markets entrepreneurship and progress

The first six chapters have laid out a theory of economic progress that differs in fundamental ways from the framework presented by mainstream economic analysis in the early twenty-first century. Many of the ideas presented here are not entirely new, and the general orientation of this analysis can trace its foundation back to more than two centuries, to the ideas of Adam Smith. But the economics profession has not uniformly followed Smith's lead, or built on his insights. Chapter 2 framed the issue by dividing the analysis of economic growth into two broad camps, one following the ideas of Smith, and the other following the ideas of David Ricardo. This volume takes the Smithian approach, building on Smith's insights along with the insights of other economists, most notably Joseph Schumpeter and Israel Kirzner. One goal of this chapter is to discuss the relationships among the ideas of Smith, Schumpeter, and Kirzner. Doing this points toward a more general entrepreneurial theory of...

Types of Entrepreneurial Activity

There are many opportunities for alert entrepreneurs, Some are of relevance only for short-run market processes others hold relevance for long-run processes of growth and development. J wll show that, despite the validity of such classification, the nature of entrepreneurial decision making is, at bottom, no different in regard to long-run growth contexts than in regard to short-run contexts. There appear to be three major types of concrete entrepreneurial activity arbitrage activity, speculative activity, and innovative activity. Arbitrage activity consists of acting upon the discovery of a present discrepancy (net of all delivery costs) between the prices at which a given item can be bought and sold. Such activity involves the discovery of error, sincc those who sell at the low price are simply unaware of those who buy at the higher price, and vice versa, This discovery constitutes a discovery of an opportunity for pure gain. It is surely the incentive provided by such opportunities...

Entrepreneurial Leadership

Is that it must also be thought of as being run by a purposeful agency. We saw in Part 2 that Hayek proposes the concept of purpose as the major distinguishing characteristic of man-made organizations. Therefore, for the firm to retain the character of man-made organization rather than slip towards the status of a spontaneous order, the existence of a purpose must be conceived as an ongoing process that reproduces these structures as organizations. We define this process as entrepreneurial leadership. If this process of constantly reaffirming a purpose for the organization ceases to be effective, the emergence and the evolution of spontaneously evolving rules that we have already discussed will tend to transform the firm into a spontaneous order. Therefore, a business firm will retain its character as an organization for as long as entrepreneurial leadership is effectively exercised. But why describe this process as entrepreneurial leadership rather than simply as entrepreneurship We...

Characteristics of entrepreneurial alertness

Boldness, impulse, hunch are the raw materials of entrepreneurial success (and failure). It is important to examine the unique characteristics of entrepreneurial alertness if we are to appreciate this elusive concept and to understand the types of institutions and economic policies that are likely to be conducive to it. A general point is that entrepreneurship is not a factor of production, not even a special kind of productive factor (Kirzner 1979 180-181). The characteristics of entrepreneurial alertness which distinguish it sharply from conventional economic resources can be summarised as follows 1 entrepreneurial alertness does not represent the mere possession of superior knowledge of market opportunities 2 entrepreneurial alertness is non-deployable and tacit 3 no market exists for hiring entrepreneurial services, and entrepreneur-ship cannot be treated in terms of demand and supply curves 4 entrepreneurship is costless. Entrepreneurial alertness does not represent the mere...

Entrepreneurial Leadership And The Development Of The Firm

However, this indeterminateness only relates to a static view of business organizations, i.e. on the relation between the two aspects of leadership at a point in time and at a particular stage of their development. When the development of the firm is the object of inquiry, our analysis suggests that the two aspects may be shown to be systematically related to different, but very specific, instances of this development. The reason is that each one of them is better suited for different instances of the pursuit of an entrepreneurial conception. Leadership-as-authority is essential for the initial stages of implementation of an entrepreneurial project or the instances in a firm's development that the entrepreneur attempts to effect a major refocusing of his her conception. These are instances in which the entrepreneur's purpose - in the Hayekian sense - has to be more forcefully asserted, in order to ensure the coordinated operation of the firm's members. The importance of...

The Entrepreneurial Process and Public Policy

The entrepreneurial process is a continuous, endless process of discovery. The opportunities for discovery embrace both those consisting of the discovery of errors by others trading (or expected to trade) in markets now or in the future and the discovery of unsuspected resources or technical feasibilities that constitute genuine innovation. If society has a stake in encouraging the solution to Hayek's coordination problem, this must surely extend to the intertemporal coordination opportunities that can be exploited only by innovative, entrepreneurial breakthroughs. How can society achieve this What policies can, without incurring unacceptable costs, stimulate or release the potential for discovery that exists in all motivated human beings that make up a society's population It should be clear that stimulating the potential for discovery must be a task rather different from that of stimulating or coaxing out a greater supply of a given scarce resource or service. The potential...

Schumpeter Kirzner entrepreneurship and progress

With this background, the relationship between entrepreneurship and progress can be described in a straightforward way by reference to Schumpeterian and Kirznerian entrepreneurship. Starting with the status quo, an entrepreneurial action disrupts the existing coordination of individual plans, disequilibrating the economy. The entrepreneurial action will improve the well-being of some economic actors by introducing a new or improved good or service, or by introducing a superior production process for an existing good or service. By so doing, people who planned to buy the old good or service now migrate to the new, and people who were engaged in the old production process find their business eroded by a superior process. Schumpeterian entrepreneurship thus disrupts an existing equilibrium. A good or production process inferior to the status quo has a limited potential to disrupt existing economic arrangements. While some individuals might mistakenly buy the new good, or switch to the...

Entrepreneurship An Exploratory Essay

Because entrepreneurship is typically associated with the creation of new business ventures and innovation in the for-profit sector of the economy, ''nonprofit entrepreneurship'' may seem to be a contradiction in terms. Yet many large and successful nonprofit organizations that exist today can trace their lineage back to the enterprise and vision of a founder, such as the International Red Cross (Jean-Henri Dunant), Mothers Against Drunk Driving (Candace Lightner), Girl Scouts (Juliet Lowe), and Tax Analysts and Advocates (Thomas Field). More locally, it is also not unusual to find a press account of a recently founded nonprofit that appears to be meeting a particular need in a new and creative way. Thus, the growth and evolution of organizations in the nonprofit sector of the economy, which by some estimates accounts for roughly 7 percent of the U.S. GDP, is thus clearly shaped by individuals who fit Webster's definition of an entrepreneur as ''one who organizes, manages, and assumes...

Entrepreneurial foundations of macroeconomics

This merging of Schumpeterian and Kirznerian entrepreneurship into a more general model of economic progress can be applied more broadly to analyze macroeconomic instability. Macroeconomics became a separately identified subset of economics in the 1930s as a result of the Great Depression, and up through the 1960s macroeconomics was Keynesian economics. The unemployment of the The relationship between Hayek's business cycle theory and Hayek's definition of equilibrium discussed in Chapter 4 should be apparent. Equilibrium exists when everyone's plans are mutually consistent. When people make plans that are inconsistent, ultimately some of those plans will not be able to be realized, creating a disruption that results in an economy out of equilibrium. Hayek focused on monetary causes of such disruptions, but Schumpeter, in his book, Business Cycles,16 argued that the creative destruction of entrepreneurship created business cycles. Entrepreneurs introduce innovations into the economy,...

The Role Of Entrepreneurship

There have, it is true, been other definitions of the entrepreneurial role. The principal views on the question have been those of Schumpeter, Frank H. Knight, and Mises. I have argued, however, that these alternative definitions upon analysis all have in common the element of alertness to opportunities.- Alertness should be carefully distinguished from the mere possession of knowledge. And it is the distinction between being alert and possessing knowledge that helps us understand how the entrepreneurial market process systematically detects and helps eliminate error. A person who possesses knowledge is not by that criterion alone an entrepreneur. Even though an employer hires an expert for his knowledge, it is the employer rather than the employee who is the entrepreneur. The employer may not have all the information the hired expert possesses, yet the employer is better informed than anyone else he knows where knowledge is to be obtained and how it can be usefully employed. The...

The disappearance of the entrepreneur as a driving force of capitalism

Schumpeter defines capitalism as an economic system that is constantly revolutionised through the innovative efforts of particularly gifted economic agents, the entrepreneurs. However, the expansion of monopolistic organisation threatens the very nature of this source of permanent renewal. Progress becomes increasingly automatised, undermining the role of leadership. According to Schumpeter, this phenomenon may 'affect entrepreneurship and capitalist society nearly as much as the cessation of economic progress would' (Schumpeter 1950a 131). The reason is twofold first, by qualifying the role played by private ownership and by imposing bureaucratic procedures, large companies tend to interpose a distance between innovative activity and the personality of an individual. Secondly, this effective erosion of the purpose of the individual entrepreneur has serious repercussions for the social or class structure of a capitalist society in that it undermines the role of the bourgeoisie. Hence,...

The entrepreneurial alternative

Capital and more roundabout methods of production that have remained an integral part of Austrian capital theory,23 and as noted earlier in the chapter, have been applied to explain business cycles24 and economic growth.25 This literature focuses on incentives for altering the production process, rather than focusing directly in the inputs used in production. As such, it looks at the incentives entrepreneurs have to discover new production processes, rather than looking at changes that occur to the production process after entrepreneurs have acted. The neoclassical framework argues in favor of enhancing human and physical capital, and improving production processes, but by focusing on inputs overlooks how market incentives lead entrepreneurs to invest and innovate. Within a neoclassical framework, where things are produced by combining inputs in a production function, the most straightforward way to get technological change is to produce it. Research and development can be undertaken...

The theory of entrepreneurship

With the development of the theory of entrepreneurship, Kirzner became the official leader of the Austrian revival. Although the streams of Lachmann and, to a lesser extent, of Rothbard, also play a significant role in the Austrian revival, the most influential analytical developments of the Austrian school are undoubtedly linked with the name of Kirzner. There are two reasons for this. On the one hand, the theory of entrepreneurship summarises the contributions of both Hayek and Mises. Indeed, Kirzner's theory is explicitly founded upon the two main analytical principles developed by these authors, that is, the concept of human action and the recognition of the problem of knowledge. Kirzner's entrepreneur is a Mises-type agent who ensures the setting-up of the equilibrating market process, using his ability to promote the discovery and diffusion of information. Kirzner's entrepreneur thus represents a stabilising force, a coordinating element of the free market process which enables...

Motivations of Nonprofit Entrepreneurs

Whether nonprofit entrepreneurship takes the traditional form of creating a new nonprofit enterprise, or follows the social venturing model of founding a new for-profit business with a charitable mission, it is plausible to assume that in most cases the impetus for creating these new organizations comes from an individual, or a group of individuals. These persons become nonprofit entrepreneurs when they identify a need or a demand for some type of charitable good or service, and then spend time and energy assembling the productive inputs that are needed to satisfy that demand, using either the nonprofit or the for-profit form of organization. What factors might motivate individuals to become traditional nonprofit entrepreneurs and found new 501(c)(3) charities As Jerald Schiff (1986) and Schiff and Weisbrod (1993) have noted, an attribute of nonprofit entrepreneurs that distinguishes them from their for-profit counterparts is that they are utility maximizers'' rather than profit...

Institutions and entrepreneurship

Entrepreneurship generates economic progress, but a look around the world, and a look back through history, shows that some places are more entrepreneurial than others, and that some places are more prosperous than others. Obviously, the entrepreneurial process that produces prosperity is not automatic. History also shows that places with little entrepreneurship can be transformed to become entrepreneurial and more prosperous, so whether an economy is entrepreneurial is not determined by exogenous factors, and can be changed. Similarly, while some places in the world have enjoyed substantial economic progress, others have stagnated and even sunk into economic decline. If entrepreneurship is the key to economic progress, and if economies can be made more entrepreneurial, an important policy issue is how entrepreneurship can be encouraged. The answer is that institutions that create economic freedom by protecting property rights and removing impediments to market exchange encourage...

Austrian Themes In The Theory Of Entrepreneurship

Traditional contributions to neoclassical marginalism denote an analytical framework, in which scarce resources are allocated to meet given ends. Neglecting the role of entrepreneurship, equilibration is assumed to result from a seemingly automatic adjustment mechanism (H bert and Link 1982, 52n). In particular, the essentials of the 'marginalist revolution' of neoclassical economics have been summarised by the concept of opportunity costs, rational behaviour and individual choice, as well as by problems of information procession that lead to the question of the stability of equilibrium (Spengler 1973, 211n). Walrasian theory represents the most abstract variant in that theoretical endeavour. In its static exchange model, the entrepreneur comes into play as a buyer of services which are used as inputs in production, operating with fixed technical coefficients (Jaff 1967, 6n). Due to the zero-profit situation in equilibrium, the opportunity for entrepreneurial profit arises basically...

Charitable Entrepreneurs and the External Environment

Whether entrepreneurial impulses of individuals are ultimately translated into entry of new nonprofit and or socially minded enterprises will be affected by the external environment. In this section, we discuss how entry of traditional nonprofits is affected by changing demands for charitable goods and services, and the availability of financing for new nonprofit startups. We also describe how changes in the economy at large may be blurring the boundaries between nonprofit and forprofit organizations in ways that create new opportunities for the creation of socially minded for-profit businesses. Like for-profit businesses, nonprofits often face shifting demands for their goods and services. In some cases, these demand shifts may be fairly short-lived, if relatively intense. For example, a natural disaster, such as a hurricane or earthquake, may cause immediate need for emergency services such as food, water, and shelter. Spikes in natural gas and electricity prices may necessitate the...

Entrepreneurs and social leadership

Following the perspective developed in the introduction, our point of departure here is simple entrepreneurship is no more than a specific form of social leadership. Schumpeter defines social leadership as a 'special function' that entails 'to decide, to command, to prevail, to advance' (Schumpeter 1927 1951 217).2 This function is passing in nature since 'it emerges only with respect to ever new individual and social situations and would never exist if individual and national life always ran its course in the same way and by the same routine' (ibid.). Put differently, Schumpeter defines social leadership in relation to social and institutional change. This is not surprising since this view of social leadership was widespread in the Austrian literature of the end of the nineteenth and early twentieth century. Max Weber, for instance, introduced the concept of the 'charismatic leader', even if different from Schumpeter's entrepreneur, such that it helped to explain how social systems...

The historical and sociological aspects of Schumpeters concept of entrepreneurship

Substantial parts of BC as well as CSD are devoted to the analysis and discussion of 'Enterprise' as a 'historical fact'. Unfortunately, these passages do not always receive the attention they deserve although as Swedberg has noted, there can be little doubt that 'Schumpeter produced the first competent history of entrepreneurship in economic theory' (Swedberg 2000 12). This history describes the rise of entrepreneurship in the tenth century and its evolution through historical time, from the artisans of the middle ages through to the entrepreneurs of the putting-out system, the English agricultural entrepreneurs who introduced the system of enclosures, the industrial entrepreneurs of the first and second industrial revolutions and the modern North American 'captains of industry' overseeing the organisation of large firms in a 'trustified' capitalism. It would, however, be misleading to reduce Schumpeter's contribution to a simple history of entrepreneurship. Rather, reflecting his...

The Background Of Entrepreneur3

Money, the theory of economic change, and the general structure of a broad-based economic science, or Sozialokonomik.9 While Schumpeter successfully continued to pursue his earlier writings in economic sociology during the late 1920s and published a sociological essay that he would consider later as one of the two articles deserving to be included in his most important works,10 the work on money did not go well. Even if Schumpeter worked furiously to develop his ideas on the theory of money and continued to work on this topic also in his later years, nothing ever came of it.11 With regard to economic change, Schumpeter was interested in the business cycle and changes in the economic system per se,12 but he also pursued a more narrow focus as he set his mind on a particularly important aspect of economic development the entrepreneur. His teaching and administrative duties apart, Schumpeter had to establish his standing within the community of German economists, all belonging to the...

The economic aspects of entrepreneurial innovation in Schumpeter

The economic aspects of Schumpeter's concept of the entrepreneur have received ample attention There is therefore no need here to dwell on them in any great detail. Rather, what we will focus on here is the link between the historical and sociological aspects of Schumpeter's analysis of entrepreneurship and its economic elements. More precisely, what we are interested in is how he combines the two and what, if any, are the analytical implications of this combination for the economic concept of entrepreneurship. We begin with a discussion of the relation between Schumpeter's economic analysis of entrepreneurship and the innovative function per se. As we know, Schumpeter held that innovation is not limited to invention or to what is normally called 'technical progress' in economic literature. Instead, he analysed entrepreneurial innovation in terms of the social function that permits capitalist economic development. This definition, which derives directly from the characterisation of...

The economic aspects of entrepreneurial rationality in Schumpeter

We now turn to another aspect of Schumpeter's economic analysis of entrepreneurship, namely, his conception of entrepreneurial rationality.11 This part of our discussion draws, in particular, on Schumpeter's reflections on 'The meaning of rationality in the social sciences' (Schumpeter 1940 1991 ). This work is primarily of methodological interest it takes up and discusses a distinction he had already introduced in 1908 and 1912 between energetic and hedonistic rationality. However, Schumpeter begins his methodological reflections with another distinction, that between the 'rationality of the observer' and the 'rationality in the observed' (ibid. 319, 323). This distinction contrasts with the views expressed by conventional social analysis which assumes

The Writing Of Entrepreneur

However, it has not been known that Schumpeter wrote it some time before 1928 - namely in 1926. We have been able to retrieve Schumpeter's correspondence with the publisher, G. Fischer in Jena, which allows a very precise dating of the origin of this article. The dating is important, because in the small cluster of articles on entrepreneurship that Schumpeter wrote in the years 1926-1929, the sequence of events obviously matters for reconstructing how the entrepreneur evolved in that critical period when Schumpeter put his mind to this topic a second time.20 The correspondence shows that Schumpeter submitted the final version of Entrepreneur to the publisher on 7 September 1926. This date makes clear that the article was written extremely close in time to the revision of Theory (the preface to which Schumpeter signed in October 1926) - maybe Schumpeter even wrote them, or at least put the finishing touches, in parallel. The date is further...

Implications Of Schumpeters Depersonalised Conception Of Entrepreneurship

Immediately after defining entrepreneurship in terms of the function of the middleman, Schumpeter emphasises that this function of mediation between producers and consumers is an extraordinarily important aspect for the theory of the market economy. The reason is that Schumpeter defines the essence of the market-economy as the fulfilment of the entrepreneurial function by a private economic subject, i.e. any independent economic unit, including the individual. In the market-economy, the middleman serves the crucial function of connecting the independent economic units, whereas the central agency would take care of this function in a planned economy. Much later in the text Schumpeter alludes to various forms of economic leadership, of which he only describes one in detail the market-economic form of economic leadership. He says that the market-economic form of economic leadership is the entrepreneurial function. And, as we already know, the essence of the entrepreneurial function is to...

Disequilibrium In The General Market And Entrepreneurial Opportunities

These considerations reveal the central role that the entrepreneur is able to play in the market process, as well as the relation between the imperfection of knowledge and the existence of a state of disequilibrium. We have discovered that whereas in equilibrium every good sells for a single price throughout the market (no matter what the form in which the good may be), in the disequilibrium market more than one price prevails for the same good (either when the good is sold in different forms for different prices, or when the same goods sells for different prices). Inconsistency among the decisions of market participants reveals itself in the form of more than one price for the same good. This is an important discovery, since it links general market analysis of the most complex order with the analysis of the simplest of conceivable markets. We know that We recall further, from analysis of the single-commodity market, that the simplest type of entrepreneurial activity is arbitrage...

Entrepreneurial Activity And The General Market Process

In this section we will discuss the various kinds of market forces that may be set into motion by entrepreneurial activity as a result of particular disequilibrium conditions. product. We have analyzed this already in Chapter 7. Entrepreneurs who find out this price discrepancy will simply buy the product or resource at the low price from those who do not know that any higher price can be obtained for it, and will sell at the higher price to those who do not know that it can be obtained at any lower price. In so doing entrepreneurs are wiping out a lack of coordination between decision makers. Among those who were aware only of the lower price, there were presumably some who might have sold more of the product or resource than they are prepared to sell at the lower price. Similarly, among those who knew only of the higher price, there were presumably some who might have bought a larger quantity had they known of the lower price. Entrepreneurial activity leading to a single...

Kirzners theory of entrepreneurship

Israel Kirzner's work, with its explicit emphasis on the entrepreneurial role in economic interaction, is of particular interest in the present context because of Kirzner's (1985 7ff.) claim that his own alertness theory of entrepreneurship keeps a balanced middleground between two extreme views, the neo-classical equilibrium view on the one side and Shackle's subjectivism on the other, or, in our terms, between a teleological and a non-teleological concept of the market process.19 As we shall argue, however, in spite of his emphasis on innovative entrepreneurial dynamics and in spite of his verbal recognition of the creative and open-ended nature of the market process, Kirzner's approach fails to escape the subliminal teleology of the equilibrium framework.20 There is, as Littlechild (1979) has pointed out in some detail, a disharmonious mixture in Kirzner's work between a basic affinity to and remaining disagreements with the radical subjectivist position. Kirzner explicitly...

Development Of The Scientific Analysis Of The Economic Subject Entrepreneur

The historical and sociological analysis of entrepreneurship is of a recent date and was originally developed by the historical school, and the tendencies stemming from it. The economic analysis of the economic subject entrepreneur has earlier origins, however. Scientists of the late 17th century developed a notion -completely superficial, but not inappropriate - of the entrepreneur (who is usually called merchant according to the empirical material of the time, e.g. by Locke). In particular, they captured the entrepreneur in his characteristic juxtaposition to the investor.46 Scientists of the 18th century and the classics did not hold on to this idea, but - in accordance with the ever more spectacular emergence of the industrial entrepreneur - they saw the entrepreneur mainly as the employer (master, employer) on the one hand, and the owner of physical capital' on the other. Already the classics had sharpened the notion of the entrepreneur as employer into that of the exploitation...

The Entrepreneurial Function

The entrepreneurial function is nothing but such a leader-function in the sphere of the economy. At every point in time the economy works with a stock of given experiences and is based on given data that are familiar by virtue of recurring routinely. Every economic period is similar to the previous one, as well in its basic outline as in the mass of details. In essence - producing and consuming - it fulfils the same tasks as the previous one. This is the case not only because the continuous circular flow of production and consumption times and again creates the same objective situation - so to speak year in, year out - a situation that always offers essentially the same opportunities and excludes others. It is also the case because the economic subjects always approach them64 and, as a rule, under the pressure of the necessities of everyday life, have to approach them, with essentially the same ingrained and slow-changing mentality, the same knowledge and experience, the same openness...