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SBE Lect 2 Part 2: Ch2 & Ch3.1-3.4-SB- The big picture (Economists vs.…
SBE Lect 2 Part 2: Ch2 & Ch3.1-3.4-SB- The big picture
The entrepreneur is involved in change
Schumpeter Mark I: Entrepreneurs important (Innovation)
Schumpeter Mark II: (Large) businesses important (R&D)
see appendix slide 6/28
Uncertainty in the process of arbitrage
Entrepreneurs have limited information about future, availability of natural resources, technological change, and prices, etc.
Entrepreneur as special person dealing with uncertainty
◦ Personal insights or qualities (e.g., judgment qualities) to see opportunities
◦ The willingness to exploit opportunities
Seeing opportunities others don’t see :
Innovation & coordination
Blanchflower and Oswald (1998):
Fraction of population has “entrepreneurial vision”
Nevertheless, difficult to observe ,e.g.,
“The probability of running a business =(the probability of having entrepreneurial vision) × (access to capital)”
Schumpeter(1934,1942):
Entrepreneur is a special person seeing opportunities others do not see
Casson (1982):
The crucial role of the entrepreneur is to make decisions about the co- ordination of scarce resources whenever uncertainty is involved
The chief contribution of entrepreneurs is to combine and co-ordinate factors of production
Entrepreneurs create utility by giving existing factors of production a utility they did not posses before
Exploiting opportunities that you see?
Knight (1921): Everyone can be an entrepreneur if the price (
risk-adjusted rewards
) is right (Knightean assumption)
(But you need to see the opportunities)
For example, Kihlstrom & Laffont (1979) show that only those with low risk- aversion seek to exploit them
Only low risk-averse individuals become entrepreneur
Entrepreneurial profits rewards for accepting risk (balance between possibility of losses and gains)
Economists vs. organizational theorists
Book contrasts economic and organizational theory approach
Economists tend to analyze outcomes (“whether individuals choose entrepreneurship as occupation”) whilst organizational theorists emphasize processes (“why individuals choose entrepreneurship”)
Approaches have more in common than the book suggests!
For economists the answer to the “why” question is “greater utility”
Nevertheless, they are interested in factors explaining for example the choice for self-employment vs. wage-work (e.g., uncertainty avoidance)
Seeing arbitrage opportunities does not automatically lead to exploitation
Organizational theorists seek to identify (among others) “Why, when and how some people and not others discover and exploit these opportunities” (Shane and Venkataraman, 2002)
Entrepreneurs as special people with particular traits (observable characteristics), making particular choices?
Do entrepreneurs have a particular
personality?
Can you think of aspects of personality which are important for entrepreneurs, e.g., creativity, optimism?
Was Gartner right?
“Someone larger than life, full of contradictions and conversely so full of traits that (s)he would have to be a sort of generic “Everyman””? (Gartner)
◦ E.g.,Tenacity and flexibility/innovativeness?
Rauch & Frese (2007): “The traits matched to entrepreneurship significantly correlated with entrepreneurial behavior (business creation, business success) were:
Need for achievement
Generalized self-efficacy
Innovativeness
Stress tolerance
Need for autonomy
Proactive personality
Entrepreneurial (personality) traits
Book is (too) skeptical: “Gartner: “I believe that ... a focus on the traits and personality characteristics of entrepreneurs will never lead us to a definition of the entrepreneur nor help us to understand the phenomenon of entrepreneurship”
Gartner’s (1988) concludes that psychological profile of the entrepreneur would portray “someone larger than life, full of contradictions and conversely so full of traits that (s)he would have to be a sort of generic “
Everyman
”