Economics of entrepreneurship
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Best way to answer questions including models, is to really look at the arrows and
explain it through them.
Reading 1: Foss et al. (2019) Chapters 2 and 3
Chapter 2: Can you explain in your own words what the four key concepts of
Austrian Economics are? BELANGRIJK! (Know this by heart for the exam)
Subjectivism: value is subjective, it describes a relation between a valuing
person and an object being valued. Meaning that value for an object differs
per person. One person may value something more than another person.
Tacit & dispersed knowledge: knowledge is vicarious, and each individual
interpret things differently based on their own perspective and knowledge.
This can limit the view of the overall situation/problem. That is why it is better
to have multiple people interpret important knowledge to get different
perspectives and make better evaluated decisions.
Uncertainty: sometimes thing happen that are so unexpected that even
insurance cannot prepare you for this. Austrian economics emphasizes the
fact that you need the right entrepreneurial judgement to navigate such an
uncertainty.
Heterogenous capital: Austrian economics highlights the importance of capital
unlike other economic theories that can neglect this matter a bit. Unlike others
Austrian economics sees it as different resources and that you can use it for
different things.
Methodological individualism: focusing on how individual people’s actions and
decisions shape the economy. It says that economic behavior comes from
individuals pursuing their goals, and that understanding their choices helps
explain how economics works.
Chapter 3: Why is entrepreneurial decision making driven by what Austrian
economics calls judgement? What is judgement actually?
Judgement in this context is the embodiment of uncertainty and subjectivism.
Meaning that Austrian economists emphasize that the future is uncertain and that
entrepreneurs must make decisions based on their subjective
understanding/interpretation of the available information (about the market
conditions). Judgement is key for an entrepreneur to have according to Austrian
economics because it enables them to navigate complex and uncertain environments
and helps them to identify opportunities, adapt or see risks.
Reading 2: Elert et al. (2019) – Introduction: why entrepreneurship (i.e., first
chapter, you can skip 1.4 Principles and 1.5 Outline.)
The authors motivate writing their article with EU saying it’s falling behind on
Innovation while not seeming to care about Entrepreneurship in their policy
documents. If you look at the comparison they make with other regions, is the EU
behind in entrepreneurship as well?
Not necessarily but in the article, they do hint that there is room for improvement in
the EU’s support for entrepreneurs. As entrepreneurs boost innovation and growth.
,What are their three starting points for explaining their model?
Entrepreneurs are collaborative, they work with others.
Institutions matter as the rules and the system can greatly affect
entrepreneurship and its success
Context is key, what works for one successful entrepreneurship in one location
may not work for another location.
What are institutions?
According to the article institutions are the rules and systems that shape how people
interact in the economy, think of laws, social norms, regulations, etc.
How does each of the agents in the model impact firm growth?
Entrepreneurs: lead teams, find need skills and benefit from existing networks
Inventors: bring new ideas/technology into the world and help turning concepts
into actual products.
Ker personnel: provide essential skills like management, knowledge of
production, this helps the business grow.
Early-stage financiers: offer funding, guidance, and other help in order to
boost the chances of success.
Later-stage financiers: provide bigger investments which can lead to more
growth, upscaling, etc.
Competent customer: gives feedback and can influence the product
development and of course the market success of the product.
Reading 3: Wennekers & Thurik (1999) – Sections 1. Introduction and 5.
Synthesis
Chapter 1: What is the goal of the article?
They name three goals in the article:
1. To contribute to the understanding of the dimensions involved, while paying
attention to the level of analysis (individual, firm & aggregate level)
2. To provide insight in the causal links between these entrepreneurial
dimensions & economic growths.
3. To suggest ways in which to measure entrepreneurship and to suggest ways
in which the relationship between dimensions of entrepreneurship and growth
might be empirically investigated.
Why is firm ‘smallness’ an issue that needed addressing?
Because small business growth in Europe 1988-1998 was in excess as opposed to
large firms. Which then leads to the economy developing in a certain way. an
increase in the share of small firms may lead, ceteris paribus, to a lower orientation
towards exports, a lower propensity to export employment, a qualitative change in
the demand for capital and consultancy inputs, more variety in the supply of products
and services or in the manner and aims of conducting research and development.
Chapter 5: Why do they focus on the individual in their definition of
entrepreneurship?
Because entrepreneurship is seen as something individual. An individual spots
opportunity and takes action. Whether this is on their own or within an organization
, How do they suggest that the conditions of entrepreneurship eventually create
economic growth?
Entrepreneurship drives economic growth by encouraging innovation as well as
competition. New ideas can lead to an increase in productivity, new
industries/markets and overall economic advancement.
-------------------------------------------Notes lecture 1------------------------------------------------
Austrian school is different from the classical economic school as it is unconcerned
about equilibria and formal modelling. Austrian economics cares more about the
process of how an entrepreneurship is invented and the reasons behind this and why
this behavior is displayed. It is more subjective opposed to classical economics as it
leaves room for speculation.
Judgement is your own intuition in order to make assumptions about whether you are
going to be successful or not. Everybody’s judgement is different.
Some Classic Views on Entrepreneurship
Knight: Addressing Uncertainty
Kirzner, Hayek: Alertness, Bricolage (Cf.Wieser)
Mises: the price systems (and profit and loss); market-economy
Schumpeter: Innovation & Creative Destruction
Sarasvathy: Effectuation; Alvarez & Barney: Opportunity Creation
Three types of entrepreneurs:
Schumpeterian entrepreneurs: are to be found mostly in small firms. They
own and direct independent firms that are innovative and creatively destroy
existing market structures. After realizing their goals Schumpeterians often
develop into managerial business owners, but some may again start new
ventures or new firms
Intrapreneurs: also belong to the core of real entrepreneurship. By taking
commercial initiatives on behalf of their employer, and by risking their time,
reputation and sometimes their job in doing so, they are the embodiment of
leadership resulting in entrepreneurial ventures in larger firms. Sometimes
