Entrepreneurship in the Theory of the Firm

This paper develops micro-economic foundations for a theory of entrepreneurship and growth, focusing on innovation and opportunity as intermediate linkages between the two. Expanding upon points of tangency between Schumpeter and Coase, the paper argues that transactions costs are the glue that holds together entrepreneurial “new combinations.” Technological/organizational complexity of production is defined as the extent to which a technical decision by one unit within the firm affects the productive efficiency of other units. Where decreasing transactions costs tend to pull incumbent organizations apart, the possession of difficult to imitate production practices by the same organizations keeps them together. The dissolution of incumbent firms creates opportunities for entrepreneurs; the prospect of Schumpeterian rents provides the incentive to realize those opportunities.

[1]  P. Geroski What do we know about entry , 1995 .

[2]  Herbert A. Simon,et al.  The Sciences of the Artificial - 3rd Edition , 1981 .

[3]  Denis Gromb,et al.  Entrepreneurship in Equilibrium , 2002 .

[4]  A. Dixit The Role Of Investment In Entry-Deterrence , 1980 .

[5]  Stuart A. Kauffman,et al.  Optimal search on a technology landscape , 2000 .

[6]  Curtis R. Taylor Digging for golden carrots: an analysis of research tournaments , 1995 .

[7]  Daniel A. Levinthal Adaptation on rugged landscapes , 1997 .

[8]  Steven J. Davis,et al.  Gross Job Creation, Gross Job Destruction and Employment Reallocation , 1991 .

[9]  Herbert A. Simon,et al.  The Sciences of the Artificial , 1970 .

[10]  Manju Puri,et al.  The Interaction between Product Market and Financing Strategy: The Role of Venture Capital , 1999 .

[11]  Sue Birley,et al.  Small vs. Large Companies: The Entrepreneurial Conundrum , 1985 .

[12]  Larry Samuelson,et al.  The Growth and Failure of U. S. Manufacturing Plants , 1989 .

[13]  L. Telser,et al.  A Theory of Innovation and Its Effects , 1982 .

[14]  Y. Barzel,et al.  The Entrepreneur's Reward for Self-policing , 1987 .

[15]  K. Andrews The Concept of Corporate Strategy , 1971 .

[16]  William J. Baumol,et al.  Entrepreneurship in Economic Theory , 1968 .

[17]  Karl T. Ulrich,et al.  Assessing the Importance of Design Through Product Archaeology , 1998 .

[18]  Simon Kuznets,et al.  Inventive Activity: Problems of Definition and Measurement , 1962 .

[19]  Mark J. Roberts,et al.  Patterns of Firm Entry and Exit in U.S. Manufacturing Industries , 1988 .

[20]  C. Shapiro,et al.  R&D Rivalry with Licensing or Imitation , 1987 .

[21]  Industry Evolution and Transition: A Neoclassical Benchmark , 1997 .

[22]  Economics Without Entrepreneurship or Institutions: A Vocabulary Analysis of Graduate Textbooks , 2004 .

[23]  Theodore Rockwell The Rickover effect : the inside story of how Adm. Hyman Rickover built the nuclear Navy , 1995 .

[24]  Joan V. Robinson,et al.  The Nature of the Firm , 2004 .

[25]  J. Schumpeter,et al.  Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process , 1940 .

[26]  Z. Ács,et al.  Employment Growth and Entrepreneurial Activity in Cities , 2004 .

[27]  E. Mansfield TECHNICAL CHANGE AND THE RATE OF IMITATION , 1961 .

[28]  P. Stadler,et al.  Random field models for fitness landscapes , 1999 .

[29]  Daniel F. Spulber Market Microstructure and Incentives to Invest , 2002, Journal of Political Economy.

[30]  P. Romer Increasing Returns and Long-Run Growth , 1986, Journal of Political Economy.

[31]  S. Kauffman,et al.  Towards a general theory of adaptive walks on rugged landscapes. , 1987, Journal of theoretical biology.

[32]  Daniel F. Spulber Market Making by Price-Setting Firms , 1996 .

[33]  Ian L. Gale,et al.  Optimal Design of Research Contests , 2003 .

[34]  Nicolai J. Foss,et al.  Entrepreneurship and the Economic Theory of the Firm: Any Gains from Trade? , 2004 .

[35]  J. Schumpeter,et al.  The Theory of Economic Development , 2017 .

[36]  Mark C. Casson THE FIRM AND THE MARKET , 1987 .

[37]  Wei-Liem Loh,et al.  Estimating structured correlation matrices in smooth Gaussian random field models , 2000 .

[38]  Kim B. Clark,et al.  Architectural Innovation: The Reconfiguration of Existing Product Technologies and the Failure of , 1990 .

[39]  Daniel A. Levinthal,et al.  Innovation and Learning: The Two Faces of R&D , 1989 .

[40]  Daniel F. Spulber Transaction innovation and the role of the firm , 2002, The Economics of the Internet and E-commerce.

[41]  Stanley Reiter,et al.  Allocating Indivisible Resources Affording External Economies or Diseconomies , 1962 .

[42]  Paul Krugman,et al.  The Myth of Asia's Miracle , 1994 .

[43]  L. Argote,et al.  Learning Curves in Manufacturing , 1990, Science.

[44]  K. Arrow Economic Welfare and the Allocation of Resources for Invention , 1962 .

[45]  J. Gans,et al.  Incumbency and R&D Incentives: Licensing the Gale of Creative Destruction , 1999 .

[46]  Scott Shane,et al.  Technological Opportunities and New Firm Creation , 2001, Manag. Sci..

[47]  Daniel F. Spulber Capacity, Output, and Sequential Entry , 1981 .

[48]  Sidney G. Winter,et al.  Toward a Neo-Schumpeterian Theory of the Firm , 2006 .

[49]  Barry L. Bayus,et al.  The Role of Pre-Entry Experience, Entry Timing and Product Technology Strategies in Explaining Firm Survival , 2007, Manag. Sci..

[50]  Douglas Holtz-Eakin,et al.  Sticking it Out: Entrepreneurial Survival and Liquidity Constraints , 1993, Journal of Political Economy.

[51]  D. North Competing Technologies , Increasing Returns , and Lock-In by Historical Events , 1994 .

[52]  W. Arthur,et al.  The Economy as an Evolving Complex System II , 1988 .

[53]  Roy Thurik,et al.  The Impact of Entrepreneurship on Economic Growth , 2003 .

[54]  Martin L. Weitzman,et al.  Hybridizing Growth Theory , 1996 .

[55]  Pontus Braunerhjelm,et al.  Growth and Entrepreneurship: An Empirical Assessment , 2006 .

[56]  Robert E. Evenson,et al.  A Stochastic Model of Applied Research , 1976, Journal of Political Economy.

[57]  Richard Cantillon Ogólne rozważania nad naturalnymi prawami handlu = (Essai sur la nature du commerce en général) , 1932 .

[58]  Paul D. Reynolds,et al.  The Prevalence of Nascent Entrepreneurs in the United States: Evidence from the Panel Study of Entrepreneurial Dynamics , 2004 .

[59]  H. Föllmer Random economies with many interacting agents , 1974 .

[60]  A. Dixit,et al.  Monopolistic competition and optimum product diversity , 1977 .

[61]  Daniel F. Spulber Market Microstructure: Intermediaries and the Theory of the Firm , 1999 .

[62]  Luigi Zingales,et al.  Power in a Theory of the Firm , 1996 .

[63]  Zoltan J. Acs,et al.  Small Business Economics: A Global Perspective , 1992 .

[64]  Daniel F. Spulber The Market Makers: How Leading Companies Create and Win Markets , 1998 .

[65]  Robert E. Lucas,et al.  On the Size Distribution of Business Firms , 1978 .

[66]  P. Romer Endogenous Technological Change , 1989, Journal of Political Economy.

[67]  J. Schumpeter Capitalism, Socialism and Democracy , 1943 .

[68]  S. Salant Preemptive Patenting and the Persistence of Monopoly: Comment , 1984 .

[69]  Jan W. Rivkin Imitation of Complex Strategies , 2000 .

[70]  Benjamin E. Hermalin,et al.  Toward an Economic Theory of Leadership: Leading by Example , 1997 .

[71]  Roy Thurik,et al.  Linking Entrepreneurship and Economic Growth , 1999 .

[72]  K. Lancaster INTRA-INDUSTRY TRADE UNDER PERFECT MONOPOLISTIC COMPETITION* , 1980 .

[73]  Daniel F. Spulber Market Microstructure and Intermediation , 1996 .

[74]  A. Spence Entry, Capacity, Investment and Oligopolistic Pricing , 1977 .

[75]  J. A. Schmitz,et al.  Imitation, Entrepreneurship, and Long-Run Growth , 1989, Journal of Political Economy.

[76]  E. Kitch,et al.  Elementary and Persistent Errors in the Economic Analysis of Intellectual Property , 2000 .

[77]  Hugo Hopenhayn Entry, exit, and firm dynamics in long run equilibrium , 1992 .

[78]  Zoltan Acs,et al.  How Is Entrepreneurship Good for Economic Growth? , 2006, Innovations: Technology, Governance, Globalization.

[79]  Paul D. Reynolds,et al.  National panel study of U.S. business startups: Background and methodology , 2001 .

[80]  H. Stanley,et al.  On the Size Distribution of Business Firms , 2008 .

[81]  Claudio Michelacci,et al.  Low Returns in R&D Due to the Lack of Entrepreneurial Skills , 2002 .

[82]  Thomas Hellmann Entrepreneurs and the Process of Obtaining Resources , 2007 .

[83]  R. Nelson Recent Evolutionary Theorizing about Economic Change , 2005, Technology, Institutions, and Economic Growth.

[84]  Philip E. Auerswald,et al.  The Production Recipes Approach to Modeling Technological Innovation: An Application to Learning by Doing , 1998 .

[85]  Theodore W. Schultz,et al.  Investment in Entrepreneurial Ability , 1980 .

[86]  Thomas Hellmann,et al.  When Do Employees Become Entrepreneurs? , 2007, Manag. Sci..

[87]  R. Durrett Probability: Theory and Examples , 1993 .

[88]  P. Romer,et al.  Why, Indeed, in America? Theory, History, and the Origins of Modern Economic Growth , 1996 .

[89]  S. Winter,et al.  An evolutionary theory of economic change , 1983 .

[90]  Jean-Jacques Laffont,et al.  A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion , 1979, Journal of Political Economy.

[91]  Thomas S. Wurster,et al.  Blown to Bits: How the New Economics of Information Transforms Strategy , 1999 .

[92]  Z. Ács,et al.  Innovation and Small Firms , 1990 .

[93]  Z. Ács,et al.  Innovation, Market Structure, and Firm Size , 1987 .

[94]  Clayton M. Christensen The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail , 2013 .

[95]  Jennifer F. Reinganum A DYNAMIC GAME OF R AND D: PATENT PROTECTION AND COMPETITIVE BEHAVIOR' , 1982 .

[96]  W. Nordhaus,et al.  Schumpeterian Profits in the American Economy: Theory and Measurement , 2004 .

[97]  Edwin Mansfield,et al.  The Speed of Response of Firms to New Techniques , 1963 .

[98]  H. Rosen,et al.  Entrepreneurial Decisions and Liquidity Constraints , 1993 .

[99]  Rebecca Henderson,et al.  Sources of Industrial Leadership: The Pharmaceutical Industry and the Revolution in Molecular Biology: Interactions Among Scientific, Institutional, and Organizational Change , 1999 .

[100]  Daniel F. Spulber The intermediation theory of the firm: integrating economic and management approaches to strategy , 2003 .

[101]  Jean-Jacques Laffont,et al.  A Competitive Entrepreneurial Model of a Stock Market , 1982 .

[102]  L. Bourgeois STRATEGIC GOALS, PERCEIVED UNCERTAINTY, AND ECONOMIC PERFORMANCE IN VOLATILE ENVIRONMENTS , 1985 .

[103]  E. Mansfield,et al.  Imitation Costs and Patents: An Empirical Study , 1981 .

[104]  S. Winter,et al.  An Evolutionary Theory of Economic Change.by Richard R. Nelson; Sidney G. Winter , 1987 .

[105]  Per Strömberg,et al.  What are Firms? Evolution from Birth to Public Companies , 2005 .

[106]  Attila Varga,et al.  Entrepreneurship, Agglomeration and Technological Change , 2005 .

[107]  Jennifer F. Reinganum The timing of innovation: Research, development, and diffusion , 1989 .

[108]  S. Shane A General Theory of Entrepreneurship: The Individual-Opportunity Nexus , 2003 .

[109]  Joseph E. Stiglitz,et al.  Credit Markets and the Control of Capital , 1985 .

[110]  W. Baumol The Free-Market Innovation Machine - Analyzing the Growth Miracle of Capitalism , 2002 .

[111]  George Strauss,et al.  Tracking the Giant Corporation@@@Scale and Scope: The Dynamics of Industrial Capitalism. , 1991 .

[112]  Alfred D. Chandler Organizational Capabilities and the Economic History of the Industrial Enterprise , 1992 .

[113]  Mark Casson,et al.  The Entrepreneur: An Economic Theory , 1982 .

[114]  Jennifer F. Reinganum Innovation and Industry Evolution , 1985 .

[115]  C. S. Yoo Copyright and Product Differentiation , 2003 .

[116]  Mark Casson,et al.  Information and Organization: A New Perspective on the Theory of the Firm , 1997 .

[117]  A. Stel,et al.  The effect of entrepreneurship on national economic growth: an analysis using the GEM database , 2004 .

[118]  Jennifer F. Reinganum Dynamic games of innovation , 1981 .

[119]  David B. Audretsch,et al.  The Economics of Small Firms , 1990 .