Measuring Entrepreneurship

26 May 2006 at 12:57 am 2 comments

| Peter Klein |

Earlier this week the Kauffman Foundation released an Index of Entrepreneurial Activity for the US and for individual US states. A local TV station asked me to comment on the report (my state, Missouri, ranked sixth from the bottom, provoking much consternation), so I prepared a few sound bites. Here they are:

1. Entrepreneurship is difficult to define, let alone measure. The Kauffman index estimates the percentage of adults, not already owners of a business, who start a new business each month. But the common notion of "entrepreneurship" encompasses imagination, creativity, risk-taking, judgmental decision-making, and so on, activities or attributes not necessarily reflected in new firm formation.

2. The Kauffman index measures the rate at which new firms are established, not the number of firms that exist. The Census Bureau's Survey of Business Owners provides one measure of the latter. I haven't examined it in detail, state by state, but spot-checking suggests that its ranking doesn't correspond closely to the Kauffman ranking. (Missouri, for example, is 30 of 50 in the number of independent establishments.)

3. The Kauffman index shows strong regional variation. The states with the highest rates of new firm formation are in the Pacific, Mountain West, and lower Midwest, while the lowest-ranking states are clustered in the Midwest, Middle South, and New England. Moreover, though the Kauffman report doesn't provide detail by county or MSA, we know from other research that there is substantial within-state variation in startup rates (particularly among urban/rural lines). For these and other reasons, state-level rankings of entrepreneurial activity may not be especially meaningful.  

I explained all this to the reporter in my usual eloquent style. Naturally, when I watched the news that evening, I found that my interview had been cut entirely, replaced by an interview with a local business owner saying "Gee, this state seems like a good place to start a business to me!"

Oh well, to paraphrase what was said of Fred Allen, I guess I have the looks and speaking style perfect for blogging.

Entry filed under: - Klein -, Entrepreneurship. Tags: .

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2 Comments Add your own

  • 1. dammika  |  7 August 2006 at 2:49 am

    if possible p[lease send the paper regarding that mesuring entrprenurship I am interested of your article and want to use for my dessertation in my first degree course
    thanks
    dammika

  • 2. Peter Klein  |  7 August 2006 at 10:15 am

    Dammika, the Kauffman reports can be downloaded at

    http://www.kauffman.org/items.cfm?itemID=703

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Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
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Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).

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