The Evolution of Entrepreneurial Skill

23 May 2011 at 10:49 am 8 comments

| Peter Klein |

Market competition is often characterized as an evolutionary selection process. “[O]ne of the main functions of profits is to shift the control of capital to those who know how to employ it in the best possible way for the satisfaction of the public. The more profits a man earns, the greater his wealth consequently becomes, the more influential does he become in the conduct of business affairs” (Mises, “Profit and Loss,” 1951). Within a given population, then, the market process selects for those individuals with the greatest levels of entrepreneurial skill. But can the emergence of entrepreneurial skill as a human trait itself be explained in terms of natural selection? Here’s one attempt:

Evolution and the Growth Process:
Natural Selection of Entrepreneurial Traits

Oded Galor, Stelios Michalopoulos
NBER Working Paper No. 17075, May 2011

This research suggests that a Darwinian evolution of entrepreneurial spirit played a significant role in the process of economic development and the dynamics of inequality within and across societies. The study argues that entrepreneurial spirit evolved non-monotonically in the course of human history. In early stages of development, risk-tolerant, growth promoting traits generated an evolutionary advantage and their increased representation accelerated the pace of technological progress and the process of economic development. In mature stages of development, however, risk-averse traits gained an evolutionary advantage, diminishing the growth potential of advanced economies and contributing to convergence in economic growth across countries.

This is a (mathematical) theory paper with “entrepreneurship” modeled as tolerance for risk, so some readers will find the execution less interesting than the idea. But it is good to see these kinds of big-picture issues addressed in the mainstream literature.

Entry filed under: - Klein -, Austrian Economics, Entrepreneurship, Evolutionary Economics. Tags: .

Klein Even Bigger Competitive Advantage, Network Advantage, and Vienna

8 Comments Add your own

  • 1. Rafe  |  24 May 2011 at 8:02 pm

    Tolerance of risk is a poor proxy because it will pick up gamblers as well as entrepreneurs.

  • 2. Rafe  |  24 May 2011 at 8:04 pm

    Is anyone looking at McClelland’s “n-Ach” these days?

  • 3. Randy  |  25 May 2011 at 11:01 am

    My impression is that McClelland’s work has been forgotten in the lemming-march toward opportunity analysis. IMHO, there was much poor-quality research on entrepreneurial attributes done after McClelland and his collaborators developed N-Ach and N-Pow, and that the backlash against the poor science also downgraded McClelland’s work. Moreover, the N-Ach construct measured competence/motivation as much as ability and I wonder if the social psychologists can tolerate these scales to be confounded.

  • 4. Rafe Champion  |  25 May 2011 at 6:24 pm

    McClelland may have stimulated some poor work but his book is packed with exciting ideas, including cultural studies like the influence of children’s books in promoting entreprenneurial attitudes. It would be good to see it re-visited to see what can be retrieved. I am sure it has been forgotten and it would have been out of fashion but then so was Austrian ec.

    Maybe it was just premature.

  • 5. Rafe Champion  |  25 May 2011 at 6:26 pm

    Now I recall there is lady in the US who is deliberately writing children’s books to promote the entreprenneurial ethos. Can’t remember the name.

  • [...] The Evolution of Entrepreneurial Skill – via Organization & Markets- This research suggests that a Darwinian evolution of entrepreneurial spirit played a significant role in the process of economic development and the dynamics of inequality within and across societies. The study argues that entrepreneurial spirit evolved non-monotonically in the course of human history. In early stages of development, risk-tolerant, growth promoting traits generated an evolutionary advantage and their increased representation accelerated the pace of technological progress and the process of economic development. In mature stages of development, however, risk-averse traits gained an evolutionary advantage, diminishing the growth potential of advanced economies and contributing to convergence in economic growth across countries. [...]

  • 8. Stephen Ellis  |  7 June 2011 at 5:33 am

    Running your own business is all about working with people. You have to communicate with and satisfy employees, customers, suppliers, shareholders, investors and more. Your ability to communicate with them is critical to entrepreneurial success

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Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
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