Opportunities and Entrepreneurship Research: A Critique
| Peter Klein |
The notion of economic “opportunities,” and their discovery or creation, is one of the core concepts of contemporary entrepreneurship research. But the use of opportunities as the unit of analysis poses several problems. The opportunity-discovery or opportunity-recognition perspective tends to treat economic opportunities as objective phenomena, while, under Knightian uncertainty, profit opportunities are always subjective, existing only in the imagination of economic actors. In an alternative view that Nicolai and I have elaborated in several papers, entrepreneurship is best understood not as perception, but as action, the investment of resources under uncertainty in anticipation of uncertain rewards.
In a new paper, “Opportunity Discovery, Entrepreneurial Action, and Economic Organization,” I critique the opportunity-discovery perspective in more detail. In particular, I argue that the literature has misunderstood Israel Kirzner’s concept of “discovery,” the theoretical basis of much of the research on opportunity discovery. Kirzner’s explanandum is not entrepreneurship per se, but equilibration. He invokes the entrepreneur, and his “alertness” to exogenously determined profit opportunities, as a metaphor, to explain the tendency of markets to clear. It is not meant as a positive account of the entrepreneurial function, but rather an instrumental explanation of the market process. Hence a research program based on operationalizing “opportunities,” exploring thow they can be “discovered without search,” and so on, is unlikely to bear fruit.
The paper is forthcoming in the Strategic Entrepreneurship Journal. Comments welcome. Abstract below the fold.
This paper reviews and critiques the “opportunity discovery” approach to entrepreneurship and argues that entrepreneurship can be more thoroughly grounded, and more closely linked to more general problems of economic organization, by adopting the Cantillon-Knight-Mises understanding of entrepreneurship as judgment. I begin by distinguishing among occupational, structural, and functional approaches to entrepreneurship and distinguishing among two influential interpretations of the entrepreneurial function, discovery and judgment. I turn next to the contemporary literature on opportunity identification and argue that this literature misinterprets Kirzner’s instrumental use of the discovery metaphor and mistakenly makes “opportunities” the unit of analysis. I then describe an alternative approach in which investment is the unit of analysis and link this approach to Austrian capital theory. I close with some applications to organizational form and entrepreneurial teams.