Investment in Entrepreneurial Ability

The economics of the acquisition of entrepreneurial ability is still in its early phase. What entrepreneurs do must have some scarcity and have some economic value; there must be some rent that accrues to the scarce entrepreneurial ability. The supply of entrepreneurial ability is rarely considered. Rejects the idea that the economic value of entrepreneurial activities can be considered as a return for risk bearing. Risk bearing is not unique to entrepreneurs. Disequilibria are inevitable in a dynamic economy. Using a human capital approach, this analysis argues that the abilities of entrepreneurs to deal with economic disequilibria -- to make non-routine decisions and reallocate resources -- are part of the stock of human capital. Experience, health, and education enhance the acquired abilities of entrepreneurs. As technology becomes more complex, the comparative advantage of schooling increases. A number of studies of the effects of schooling on farmers, which demonstrate their ability to perceive and interpret new information and to decide to reallocate their resources to take advantage of new and better opportunities. Increased education added to the earnings of farmers and, hence, their entrepreneurial abilities. This investment approach to entrepreneurial ability suggests that the returns to education are substantially undervalued. (TNM)