Chapter 3: Entrepreneurship and Macroeconomic Performance with Nigel Wadeson
This chapter develops a formal model of the impact of entrepreneurship on macroeconomic performance. It examines the role of entrepreneurs in creating markets for novel products. Entrepreneurs specialize in collecting information that permits them to make judgemental decisions about innovation. The quality of their judgement determines the success of innovations, and thereby impacts on the long-run performance of the economy. The model demonstrates rigorously that constraints on the supply of entrepreneurship reduce economic performance, and serves to identify the policy instruments that can improve performance by alleviating these constraints. 3.1 INTRODUCTION In response to the industrial depression of the 1970s and the rise of ‘supply-side economics’ many Western governments began to promote entrepreneurship and enterprise culture as a means of improving macroeconomic performance (see Chapter 1). By 2000 the budgets for supporting small-business start-ups, strengthening university–business linkages and promoting high-technology industrial districts had become very substantial. Recently, policymakers have begun to question whether the benefits of these policy interventions outweigh their costs. For example, while small firms have undoubtedly created new jobs for workers made redundant by large firms in ‘sunset’ industries, many of these new start-up firms have failed to grow as quickly as expected (Storey, 2006). Economic theories of entrepreneurship suggest that entrepreneurship brings wide-ranging benefits, including greater innovation, more risktaking and a general improvement in the coordination of the economy (Harper, 1996). In principle, these theories should provide a simple framework for evaluating the contribution of entrepreneurship to the macroeconomy. But in practice these theories are...
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