Summary
Article Summary - Economics of Entrepreneurship (ECB2ECE)
- Course
- Institution
Summary of all the must-read articles! Learn this and you'll get a good grade anyway. Good luck!
[Show more]
Seller
Follow
mikkivansnek
Reviews received
Content preview
SUMMARY - ECONOMICS OF ENTREPRENEURSHIP 2024Week 1 2
- Foss et al. (2019): Chapters 2 and 3 2
- Elert et al. (2019): Introduction: Why entrepreneurship (first chapter) 7
- Wennekers & Thurik (1999): Section 1 and 5 10
Week 2 14
- Foss et al. (2019): Chapter 4 14
- Baumol (1996) 17
- Litan & Hathaway (2017) 19
Week 3 20
- O’Connor et al. (2018): Chapter 1 20
- Stam (2020) 22
- Isenberg (2010) 26
Week 4 27
- Wennekers & Thurik (1999): Sections 2 and 4 27
- Alvarez & Barney (2007) 30
- Dew et al. (2004) 34
Week 5 39
- Foss et al. (2019): Chapters 5 and 6 39
- Massa et al. (2017) 45
- Kirtley and Mahony (2023) 50
- Blank (2013) 51
Week 7 52
- Kautonen (2015) 52
- Parker (2009) 53
- Sorgner & Fritsch (2018) 55
Week 8 57
- Santos (2012) 57
- Zahra et al. (2009) 59
- Constanza et al. (2014) 61
1
,Week 1
- Foss et al. (2019): Chapters 2 and 3
Chapter 2: What is Austrian Economics?
Origin
The Austrian School was founded probably around 1871 after the marginalist revolution. The
work from a group of different economists that were inspired by Carl Mengers work
“Principles of Economics” formed the core of the school. A lot of important work was credited
to Austrian School economists for particular ideas. Most famous name associated with the
School is Joseph Schumpeter.
→ He wasn’t a member of any school of thought, but his emphasis on entrepreneur and
historical processes, skepticism of macroeconomics, and analysis of the role of politics and
ideology is closely related to the Austrian School. Econometrics and mathematical
economics ideas he had, distanced him from it.
First notable characteristic: scope → A wide-ranging but integrated account of economic
relations: Seeks to understand value, prices, and other economic facts as they exist in the
real world, rather than how they might behave under abstract/unrealistic conditions (long-run
equilibrium).
Focus on uncertainties and errors that influence human actions → Emphasis on realism.
The market is not a static or equilibrium state, but rather a dynamic process in which
individuals use the price system to coordinate their actions and improve their welfare over
time.
Austrian Economics: Key Concepts
Methodological individualism: Austrian economics is value-free, neutral and not prescribing
any political stance → So it is not related to political individualism. Ontological individualism
is the position that ultimately only individuals can truly act. Methodological individualism is
that individuals and the things they perceive, like, plan, do, etc. are the ultimate building
blocks of social science. Collectives (groups/firms) can only be understood by individual
interaction and action.
→ Methodological collectivism: opposite of methodological individualism. Since individuals
are anonymous occupants of structural roles and are in essence alike, they are of little or no
analytical interest.
→ Even though management is a micro activity and it begins always and everywhere
with the individual, management theory emphasizes structure, routine, and other
constructs over the individuals who comprise them. They don’t clarify how it relates to
individuals’ feelings, plans, taste, etc. → Not conform with methodological
individualism.
Subjectivism: Value is subjective. It describes a relationship between a valuing person and
an object being valued → Taste/preferences differ per person and for each person over time.
Opportunity cost is a reflection of a person's preference rankings.
→ Individual consumer at the center of economics.
→ The end of all production is consumption = the creation of value for consumers.
→ Entrepreneurial success lies with consumers: Their decision to buy determines profits.
2
,Tacit and dispersed knowledge: Subjectivism also of knowledge, information, and
expectations. Knowledge is dispersed across individuals that make up the division of labor, it
is also tacit and subjectively held. Therefore the knowledge for economics decisions is
idiosyncratic/experimental (depends on particular circumstances/time/place) → difficult to
articulate explicitly.
→ Individuals may interpret the same information differently because the knowledge they
hold is idiosyncratic. Therefore, different expectations. → Will influence investing, financing,
and production decisions.
Uncertainty: Constant barrier to successful action. Uncertainty is an implication to the
existence of tacit and dispersed knowledge and to the fact that action takes place in time.
→ Introduces the possibility of incomplete information and error → frustration of plans and
waste of scarce resources.
2 types of unknown future events: risk and uncertainty
→ Risk is homogeneous, repeatable, and relatively predictable. Mitigated by
insurance contracts.
→ Uncertainty is heterogeneous, unique, and inherently unpredictable. Cannot be
mitigated.
Therefore, it is the role of the entrepreneur to use good judgment to overcome uncertainty.
Flow of times means that no long-run equilibrium truly exists. The data of the economy are
constantly in flux.
Heterogeneous capital: Capital (along with land and labor) is one of the basic factors of
production. Normally neglected, but for Austrian economics it is indispensable. In modern
economics there is no view or theory of capital.
→ Austrian economics view: a set of ‘intermediate’ highly heterogeneous resources that may
stand in relations of complementarity, specificity, etc. to each other and can only be treated
as a stock under conditions of long-run equilibrium.
→ Modern economics view: homogeneous mass of inputs. It is reduced to a theoretical blob
or ‘shmoo’.
But if resources are identical (capital = homogeneous): combining and organizing resources
trivial, unproblematic to coordinate resources, cooperation problems unlikely,
resource-based competitive advantage cannot exist.
Chapter 3: Entrepreneurship
The Domain of Entrepreneurship Theory
Entrepreneurship central role in Austrian economics. Following Klein (2008) we distinguish
between occupational, structural, and functional theories.
Occupational theories: define entrepreneurship as self-employment. The individual is the unit
of analysis. Describing characteristics of those who start their own business. Part of it is in
the subfield of labor economics in which the choice between employment and
self-employment is a maximizing choice on the margin. Psychological and sociological
approaches looking at those personal characteristics are also part of it. Explain why some
and not others choose for self-employment.
3
, Structural theories: Firm or industry is the unit of analysis. Define entrepreneurial firms as
new, small, or innovative firms. Structural concept of entrepreneurship in literature on
industry dynamics, firm growth, clusters, and networks.
Functional (system-level) theories: Entrepreneurship is a series of actions or a process.
They highlight the entrepreneurs unique function in the system of the market economy.
→ Functions include:
• Closing pockets of ignorance: exploit unrecognized opportunities for earning a pure
profit)
• Injecting new products/processes/etc. into the economic system
• Establish new firms: allows entrepreneurs to deploy assets and investments in
pursuit of profit in uncertainty).
Many types of actions used to define the entrepreneurial function but focus mainly on
entrepreneurial judgment and related concepts.
Austrian Contributions to Entrepreneurship Theory
According to Menger in Principles of Economics 4 possible functions of entrepreneurs:
1. Obtaining information about the economic situation
2. Economic calculation
3. The act of will by which goods of higher order are assigned to a particular production
process.
4. Supervision of the execution of the production plan so that is done as economically
as possible.
The core of the entrepreneur is the idea of taking action to guide production in an
economical way.
Böhm-Bäwerk: mainly focused on capital and interest theory, but also some points about
entrepreneurship in subjectivity and uncertainty. He noted the entrepreneurial foresight in
guiding production. Entrepreneurs contribution:
• Intellectual effort represented by his supervision
• Formulating policies for the business to follow
• Act of will by which he determines that his means of production shall be enlisted in
the service of that firm.
Capital is included into the theory of entrepreneurship by: the role of a decision-maker in a
firm implies control over the use of scarce resources which are used over time.
→ Decisions about how best to allocate heterogeneous capital goods among competing
uses: do this successfully → earn profit and increase value.
Friedrich von Wieser: elaborated Mengers value theory. “marginal utility” & “opportunity
cost”. Also remarks about entrepreneurs’ economic function.
→ Believed that an entrepreneur must possess the quick perception that seizes new terms
in current transactions as his affairs develop = Ability to quickly perceive and understand
new developments that arise in the ongoing transactions and activities of the business.
Entrepreneurs are innovators: driven by the joyful power to create.
Joseph Schumpeter: Adopted some of Wiesers work, for example, that entrepreneurs are
industrial heroes that reshape the economy through innovation and creative destruction.
→ Trained by Austrians but considered independent of any school of thought.
4
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller mikkivansnek. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $8.60. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
66579 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now