Compulsory Education and Jack-of-all-trades Entrepreneurs

Can educational institutions explain occupational choice between wage employment and entrepreneurship? This paper follows Lazear's (2005) Jack-of-all-trades hypothesis according to which an individual with a more balanced set of abilities is more likely to enter into entrepreneurship. In the theoretical model proposed, abilities are an outcome of talent and educational institutions. Institutions, in turn, differ with respect to mandatory time in school and the scope of the curriculum. Implications of the theory are tested using Swedish data for a school reform. Empirical results support the main theoretical predictions.Human Capital; Occupational Choice; Entrepreneurship; Education Institutions

Productive and Destructive Entrepreneurship in a Political Economy Framework

Recent research has highlighted the role of institutions in channeling entrepreneurs into activities with positive or negative effects on overall productivity. Embedding central elements from these theories into a political economy framework reveals the bilateral causal relation between entrepreneurs and institutions. Core features of the entrepreneur force us to view its effects on institutions as more than mechanic general equilibrium adjustments. Three analytically separate channels of influence are isolated, analyzed and exemplified. Entrepreneurs influence formal economic institutions through direct involvement in politics, by using their entrepreneurial talent to wield de facto political power and by altering the effect of formal institutions. We propose a parsimonious framework that incorporates these effects as well as the role of institutions in channeling entrepreneurial talent. We use examples from modern history as a real-world context to illustrate our framework.Entrepreneurship; Innovation; Institutions; Regulation; Self-employment

Is the Elephant Stepping on its Trunk? The Problem of India's Unbalanced Growth

It is often assumed that recent success in the high-technology software industry will lead India's development. However, evidence suggest that basic manufacturing industry is stagnant. This paper proposes a mechanism that ties these two trends together. A big-push type of model, featuring linkages between firms, demand spill-over, and technology choice is elaborated. By imposing different cost structures on the manufacturing and high-technology industries the model describes outcome in terms of distribution between sectors. It is found that a policy which promotes a high-technology sector can have negative effects on the manufacturing industry as well as aggregate income. Directing resources towards infrastructure, on the other hand, benefits all sectors and increases aggregate income. The results from the model are found to correspond with the recent development pattern in India.Industrialization; India; Industrial Structure

Entrepreneurship and Second-best Institutions: Going Beyond Baumol’s Typology

This paper reconsiders the predominant typology pioneered by Baumol (1990) between productive, unproductive and destructive entrepreneurship. Baumol’s classificatory scheme is built around a limited concept of first-best outcomes and therefore easily fails to appreciate the true impact of entrepreneurship in real world circumstances characterized by suboptimal institutions. We present an alternative way of generalizing the notion of entrepreneurship and show how and why it encompasses the Baumol typology as a special case. Our main distinction is between business and institutional entrepreneurship. We draw on Schumpeter’s notion of creative destruction and reintroduce the entrepreneur as a potential disturber of an institutional equilibrium. Various subsets of institutional entrepreneurship are posited and discussed. It is shown that changing the workings of institutions constitutes an important set of entrepreneurial profit opportunities. An implication of this is that entrepreneurial efforts to reform or offset inefficient institutions can in some cases be welfare-improving.Entrepreneurship; Innovation; Institutions

The Political Economy of Entrepreneurship: An Introduction

In this introductory chapter to a collective volume dealing with the political economy of entrepreneurship,* we argue, based on a suggested unifying framework, that political economy is a fruitful approach to entrepreneurship. The importance of institutions in structuring such an analysis is also emphasized. The introduction also introduces the selected articles and puts them in context. Vital functions of the capitalist economy are ascribed to the productive entrepreneur, but the selected articles also show that the social value of entrepreneurship must be evaluated as it is realized. Three facets of entrepreneurship are claimed to be of particular importance from a political economy perspective: (i) Entrepreneurship is dynamic in the sense that it adapts to the politically determined institutional framework within which it acts. Under propitious circumstances, it can be a powerful engine of growth, but it can also be channelled in unproductive and destructive directions. (ii) Entrepreneurship enters directly into the political system. The close connection to property rights constitutes a link between entrepreneurship and private versus public ownership and redistribution. Under unfavourable institutional circumstances, rent-seeking and predatory entrepreneurship, via the political system, offer greater profit opportunities than the market. (iii) A political economy approach is necessary in order to understand how the political system shapes the institutional setup. Here, it is emphasized that the distribution of political power is partly determined by economic wealth. Hence, it is relevant to broaden the analysis to the effects on wealth creation and wealth redistribution stemming from entrepreneurial activity.Entrepreneurship; Industrial Policy; Innovation; Property Rights; Regulation; Self-employment

The Political Economy of Entrepreneurship

We outline a politico-economic growth system centered around the entrepreneur. By defining entrepreneurs in relation to economic rents we are able to develop a more general theory comprising central aspects of research within the fields of entrepreneurship/small business, public choice and new institutional economics. The entrepreneurial function is shown to depend crucially on the existing institutional framework. We also point to the necessity of viewing institutions as endogenously influenced by entrepreneurs. A typology of entrepreneurship is developed to further our understanding of the bilateral effects between institutional context and entrepreneurial activity. We use developments in modern history as a real-world context to substantiate our framework. Particular attention is devoted to the effects of enforcement of property rights and taxation, two of the most prominent institutions in the literature.Entrepreneurship; Industrial Policy; Innovation; Property Rights; Regulation; Self-employment; Tax Policy

Entrepreneurship, Wage Employment and Control in an Occupational Choice Framework

We combine two empirical observations in a general equilibrium occupational choice model. The first is that entrepreneurs have more control than employees over the employment of and accruals from assets, such as human capital. The second observation is that entrepreneurs enjoy higher returns to human capital than employees. We present an intuitive model showing that more control (observation 1) may be an explanation for higher returns (observation 2); its main outcome is that returns to ability are higher in higher control environments. This provides a theoretical underpinning for the control-based explanation for higher returns to human capital for entrepreneurs.Entrepreneurship; Ability; Occupational Choice; Human Capital; Wage Structure

Israel M. Kirzner: An Outstanding Austrian Contributor to the Economics of Entrepreneurship

Israel M. Kirzner is the 2006 winner of The International Award for Entrepreneurship and Small Business Research. In this essay, we present and evaluate his main contributions to the economics of entrepreneurship. The focus is on how Kirzner defines the entrepreneurial function. In order to better understand his theory, we posit Kirzner’s notion of an entrepreneur in the Austrian tradition. In so doing we emphasize that this concept opens up different perspectives as compared to the neoclassical theoretical framework. The three areas of economic policy, justice and freedom and economic growth are discussed. We also show why the Kirznerian entrepreneur makes these issues relevant. Perhaps most importantly, Kirzner has made the Austrian School intelligible for non-Austrians. By bridging the chasm between Austrian and mainstream thinking, the crucial role of entrepreneurship and the individual entrepreneur has become visible to a much broader audience.Austrian economics; Economic development; Entrepreneurship; Small business economics

Entrepreneurial Innovations, Entrepreneurship Policy and Globalization

What explains the world-wide trend of pro-entrepreneurial policies in the last few decades? We study entrepreneurial policy in a lobbying model taking into account the con.ict of interest between entrepreneurs and incumbents. It is shown that international market integration leads to more pro-entrepreneurial policies. It becomes more difficult to protect the profits of incumbent firms from entrepreneurial entry and pro-entrepreneurial policies make foreign entrepreneurs less aggressive. Making use of the Doing Business database, we find, consistent with our theory, evidence that international openness reduces barriers to entry for new entrepreneurs and that the effect is stronger in countries with more rent-seeking governments.Entrepreneurship; Regulation; Innovation; Market Integration; Lobbying