New Horizons in Institutional and Evolutionary Economics series
Chapter 5: Entrepreneurship, Attributes and Judgement
One of the aims of this book is to propose a unifying framework that combines a theory of entrepreneurship with an institutional theory of economic property rights. In Risk, Uncertainty, and Proﬁt, Frank Knight (1921) proposes that the entrepreneur be treated as the uncertainty-bearing residual claimant. Knight’s deﬁnition is especially suitable for the task of connecting entrepreneurship to institutions. This entails a treatment of judgement and uncertainty that goes beyond Joseph Schumpeter’s (1934) and Israel Kirzner’s (1973) more abstract approaches. Still, both Schumpeter and Kirzner capture key aspects of a Knightian entrepreneurial function. Each ﬁrm has to make a decision about which mixture of innovation, imitation and inertia to pursue. Computer simulations are useful for analysing the eﬀect of relative innovativeness in diﬀerent economic environments. One section is therefore devoted to the discussion of a simulation model that studies the relative ﬁtness of various strategy combinations (Hodgson and Knudsen, 2006). The ﬁnal section relates the theory of entrepreneurship to a broader evolutionary framework, which Loasby (2005) develops by using analogies with biological natural selection. THE THEORY OF ENTREPRENEURSHIP There is no single dominant theory of entrepreneurship, but rather there are several competing theories and variants of theories. The classic statements in entrepreneurship theory are those of Knight (1921), Schumpeter (1934) and Kirzner (1973). All three theories include the contention that entrepreneurship is a type of knowledge that is distinct from human capital, in that there is no market for it. Instead, entrepreneurship is action that creates...
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