The entrepreneur? Flashcards
1
Q
Entrepreneurship?
A
- Policy relevance in the UK and elsewhere
- Intuitively some correlation between entrepreneurial ability and firm success
- What is entrepreneurship?* Can intervention be successful?
- Can theory help in providing a rationale and direction for policy?
- Study is interdisciplinary and there is relevant literature in politics, sociology, psychology, economic anthropology, business history, marketing, and finance
2
Q
Entrepreneurship action plans?
A
- European
- National
- Regional (e.g., The Entrepreneurship Action Plan for Wales)
- Encouraging individuals to start entrepreneurial activities, helping the economy
3
Q
Entrepreneurship policies?
A
- Difficult to identify fast growth companies
- Fast growth firms are high risk
- Governments need to look after public money very carefully
4
Q
J B Say?
A
- Entrepreneur is a rare phenomenon – coordinate and combine factors of production to improve productivity and yield
- Important agenda in improving resource allocation and welfare
- Then entrepreneurship is unpredictable, making it difficult to characterise and define
5
Q
Casson?
A
- A gap in the theory – why a problem?
- Neo classical assumptions on freedom of info trivialises decision making – firm as a black box
- Differing rates of economic growth due to factor endowments of L & K – but still a residual – the entrepreneur
- Problem that neo classical theory has no acceptable model of the competitive process – invisible hand, auctioneer etc.
- Casson – brings together key elements of various theories to construct a predictive theory, and predict aggregate behaviour of entrepreneurial population
6
Q
Theory - Casson?
A
- Individuals differ in tastes and access to info – entrepreneur believes possessed information is unique and that if they act one way, others will go another way – risk taker
- The believe they are right when others are wrong
- The essence is being different
- Entrepreneur also functions to minimise transaction costs for a given volume of trade
7
Q
Functions of entrepreneur?
A
- Casson – ‘someone who specialises in taking judgemental decisions about the coordination of scarce resources’
- Individual
- Specialises - makes decisions on behalf of themselves and others
- Judgemental – not pre-programmed - judgemental decision is one where different individuals sharing same objectives and acting under similar circumstances would make different decisions
- Coordination not allocation - a dynamic concept as opposed to static allocation
8
Q
Entrepreneurs as coordinators?
A
- Belief that without their intervention, the wrong decision would be made
- Basic assumption – 2 stage process –
- The entrepreneur buys up resources that would otherwise be mis-allocated – different from the usual reasons to buy things i.e. to consume them
- Allowing judgements to differ means resources are put to different uses
9
Q
Definitions?
A
- Given problems in defining way they behave – perhaps more appropriate to define in terms of outcomes and effects
- Entrepreneurship in the market
- Entrepreneur as employer
- Entrepreneurs as middlemen – coordination by exchange
10
Q
Entrepreneurship in the market?
A
Look at diagram in notes
- Curve P can be achieved under neo-classical assumptions without any entrepreneur
- But imperfect knowledge means best technology not instantly used, so economy at point B, resources underemployed etc.
- Then entrepreneurs spot available profits, seize opportunity produce using different methods and initiating beneficial trade by economising on transactions costs
- But also, a destabilising effect, as innovators, new ideas and products moving frontier out, creating disequilibria – role in creative destruction highlighted by Schumpeter
- So, entrepreneurs cause rather than facilitate economic development
11
Q
Entrepreneur as employer?
A
- Peer group production (Alchain and Demsetz – problems of team production)
- But coordination may fail because of
- Parties unaware of team option
- Each has exaggerate idea of others productive potential in isolation – both think no point negotiating
- Negotiations failed because each over-estimates others willingness to concede
- Entrepreneur may know what each can produce in isolation and then what they could generate as a team
- So entrepreneur buys labour of each workers
- Two work as a team, as entrepreneur owns inputs and outputs and benefits of the social coordination gained by the entrepreneur
12
Q
Entrepreneur v enterprises?
A
- Commonly believed anyone starting a firm is an entrepreneur
- But venturing into existing products/services = enterprises not entrepreneurs
- Is an enterpriser similar to Schumpeter’s imitator as opposed to innovator
- Entrepreneurship = new ideas and products
- Then debateable whether all managers/firms owners are entrepreneurs
- Policy implications? Where are resources targeted?
13
Q
Entrepreneurs as middlemen?
A
- Deriving entrepreneurial profits from coordination
- Casson saw market makers as specialists
- Kirzner – any alert person as a potential entrepreneur
14
Q
Entrepreneurs as middlemen - Edgeworth box - look at diagram in notes?
A
- C is an entrepreneur and knows preferences of A and B, but A and B don’t know C preferences – C doesn’t have any resources and can only offer A what he/she intends to buy from B and vice versa
- Assume economy fixed endowment of 2 goods – total endowments represented by KLMN – assume initially each individual holds the entire amount of one of the commodities, so initial allocation of consumption represented by a corner point L
- Assume the goods are complementary – so would prefer a combination – indifference curves intersect at L, indicating potential gains from trade – in the absence of the entrepreneur, consumption would be at L, yet any point within the shaded areas would place each individual on a higher indifferent curve e.g., H
- With full info about preferences, entrepreneur moves A along LA and B along LB – the entrepreneurs consumption possibilities lie on or the boundary or within the shaded are – the entrepreneurs preferences are indicated by CC, drawn with respect to origin E
- Entrepreneurs optimal strategy determined by moving the origin E along boundary LEG until tangent QQ is parallel to tangent PP, which is common to both the upper and lower boundary – entrepreneur offers A bundle E and B bundle F – then entrepreneur gets surplus of EH units of good 1 and EJ units of good 2
- New allocation is privately efficient for the entrepreneur and socially efficient – i.e. the tangency conditions for all 3 are equalised (MRS in consumption) since A and B are on their original indifference curve – all gains from trade go to entrepreneur
- With limited information, will not know the indifference curves, but the entrepreneur could derive offer curves, by quoting trial prices – these would lie inside the shaded area, indicating reduced opportunities for the entrepreneur – can still gain just not as much
15
Q
Market for entrepreneurship?
A
- Must be motivated by gain
- Rewards are a function of economy characteristics, number, and behaviour of entrepreneurs
- Casson’s analysis based on population not individual
