The Entrepreneur

The Entrepreneur

An Economic Theory, Second Edition

Mark Casson

This thoroughly revised and updated new edition of Mark Casson’s modern classic The Entrepreneur presents a novel synthesis of the ideas of Joseph Schumpeter, Frank Knight and Friedrich Hayek, according to which the defining characteristic of the entrepreneur is the exercise of judgement in business decisions.

Chapter 14: Alternative Theories of the Entrepreneur

Mark Casson

Subjects: business and management, entrepreneurship, economics and finance, economics of entrepreneurship


14.1 INTRODUCTION This chapter critically reviews the leading economic theories of the entrepreneur: the X-efficiency theory of Leibenstein, the market process theory of Hayek and Kirzner, the risk-bearing theory of Knight and the innovation theory of Schumpeter. It also examines the relevance to entrepreneurship of the theories of the firm developed by Andrews and Penrose. It is suggested that the theory presented above is in many respects a synthesis and extension of these theories. Although there are a number of differences between the theories on specific aspects of entrepreneurship, on the whole their similarities are more significant than their differences. Each theory is valuable because it emphasizes some particular aspect of entrepreneurship. The theories are essentially complementary, both to each other and to the theory presented in this book. 14.2 LEIBENSTEIN’S X-EFFICIENCY THEORY Leibenstein’s X-efficiency theory, originally developed for other purposes, has been applied by him to analyse the role of the entrepreneur. Basically, Xefficiency is the degree of inefficiency in the use of resources within the firm: it measures the extent to which the firm fails to realize its productive potential. For a given set of inputs, productive potential is identified with a point on the neoclassical production frontier. X-efficiency arises either because the firm’s resources are used in the wrong way, or because they are wasted – that is, they are not used at all. X-efficiency is more than a concept, however; it is a new paradigm which, according to...

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