Posts filed under ‘Entrepreneurship’

Finance and the Nature of the Firm

| Peter Klein |

Raghu Rajan’s AFA presidential address is now online as an NBER working paper:

The nature of the firm and its financing are closely interlinked. To produce significant net present value, an entrepreneur has to transform her enterprise into one that is differentiated from the ordinary. To achieve the control that will allow her to execute this strategy, she needs to have substantial ownership, and thus financing. But it is hard to raise finance against differentiated assets. So an entrepreneur has to commit to undertake a second transformation, standardization, that will make the human capital in the firm, including her own, replaceable, so that outside financiers obtain rights over going-concern surplus. I argue that the availability of a vibrant stock market helps the entrepreneur commit to these two transformations in a way that a debt market would not. This helps explain why the nature of firms and the extent of innovation differ so much in different financing environments.

25 January 2012 at 6:47 am Leave a comment

Perceptions of Opportunities – Part 1

| Peter Lewin |

The January 2012 issue of the AMR (available here for subscribers or those with academic access) features two review articles assessing the progress of the “Promise” examined in the well-known article by Scott Shane and Sankaran Venkataraman (AMR 2000: The Promise of Entrepreneurship as a Field of Research) — one from each of the original co-authors. The first is an interesting, if somewhat pedestrian, article by Scott Shane. The second is a much more profound and ambitious contribution by Venkataraman together with Saras Sarasvathy, Nicholas Dew, and William Forster.

In the decade since that article there has, indeed, been a significant shift in the focus of research in entrepreneurship. Most notable, perhaps, is the focus on entrepreneurial “opportunities” — familiar to Austrian economists from the work of Israel Kirzner, but by now a standard element in the story. Each of the articles spends considerable time revisiting questions about the nature of entrepreneurial opportunities and provides its own resolutions. Here I will provide just a quick overview of this part of Shane’s article. (I intend to provide one for the second article soon).

In considering the “nexus of opportunities and individuals” offered originally in “Promise” as a reason to shift attention from the person to the function, Shane addresses the question of whether entrepreneurial opportunities should be considered “objective” or “subjective” — a question that has proliferated in this research stream, albeit with varying focus and terminology. The problem is, it seems to me, that the notion of “opportunity” is one that depends on the formation of a mental image by some individual or individuals. Opportunity implies plan — a plan of action to use, transform, combine, existing resources in a profitable way. Without the plan there is just the world. So how can “opportunity” be objective? This is related to the question: are opportunities “discovered” (Alvarez and Barney: Organizaҫões em Contexto, 2007) or are they created; or in the words of Venkataraman, et. al. are they made or found? (more…)

23 January 2012 at 3:38 pm 18 comments

Charles Dickens, Capitalist

| Peter Klein |

Did you know 2012 is the centenary of Charles Dickens’s birth? Dickens is often lumped with Carlyle, Shaw, Ruskin, etc. as a Romantic, Victorian, literary anti-capitalist. (Carlyle indeed disliked capitalism, but not for the usual reasons.) But Dickens, as I originally learned from Paul Cantor, was a wildly successful capitalist and entrepreneur, a driving force behind the great nineteenth-century innovation of the serialized, commercial novel. Consider the following from one Dickens scholar:

Stephen Marcus has called Dickens “the first capitalist of literature” in the sense that he worked within apparently adverse conditions to take advantage of new technologies and markets, creating, in effect, an entirely new role for fiction. In Charles Dickens and His Publishers, Robert Patten quotes Oscar Dystel (president and chief executive of Bantam Paperbacks) on the three “key factors” in his development of a successful paperback line: availability of new material, introduction of the rubber plate rotary press, and development of magazine wholesalers as a distribution arm. As Patten points out, parallel factors operated in the Victorian era: a plethora of writers, new technologies, and expanded distribution. And as methods of papermaking, printing, and platemaking increased in efficiency, so did means of transportation. By 1836, a crucial network of wholesale book outlets in the Strand, peddlers, provincial shops, and the royal mailmade possible by the development of paved roads, fast coaches, and eventually the national railway systemhad been consolidated. The final task facing early publishers was, then, to develop the newly accessible market for their commodity. By lowering prices, emphasizing illustrations and sensational elements, and increasing variety of both form and content, publishers created readers within the largest demographic groups: the rising middle and working classes, where readers had essentially not existed before. . . . (more…)

23 January 2012 at 10:00 am 6 comments


| Peter Klein |

This year’s DRUID conference, “Innovation and Competitiveness: Dynamics of Organizations, Industries, Systems and Regions,” is 19-21 June 2012 in Copenhagen. See the call for papers below the fold. Submission deadline is 29 February.  (more…)

14 January 2012 at 11:50 pm 2 comments

The First (Unlikely) Significant Entrepreneurial Team?

| Peter Lewin |

Who was the most significant entrepreneur in the bible (old Testament)?

I ask my students this trying to lead them to Joseph. As a result of his interpretation of Pharaoh’s dreams, not only he, but the whole of Egypt reaps enormous profit. He recognizes the meaning in the dreams and counsels Pharaoh on how to profit from impending misfortune — thus also alleviating the misfortune of many others (by investing in times of plenty to cover the looming famine).

But, thinking about this a bit more, one may argue that what we have here is a veritable entrepreneurial team. After all, it is Pharaoh who has the dream, the vision, though he needed Joseph to interpret it. One without the other was nothing — together they were everything. And then there is the fact that that Pharaoh exercises his judgment in believing Joseph. He takes a huge risk and elevates this lowly, condemned Jewish prisoner to the highest office. He puts aside his ego and courageously follows his better judgment. Surely Schumpeter should have been proud, no?

21 December 2011 at 12:16 am 6 comments

Strategy and Regulatory Uncertainty

| Peter Klein |

The Fall 2011 issue of California Management Review is a special issue on “Environmental Management and Regulatory Uncertainty.” I don’t think the authors have been reading Robert Higgs but they nonetheless offer some interesting perspectives on nonmarket strategy and political entrepreneurship. I look forward to future issues on Enron and Goldman Sachs (is it yet considered a branch of the Federal government?).

13 December 2011 at 1:23 am Leave a comment

Entrepreneurial Paradoxes and Simulations

| Peter Lewin |

Back from the SEA meetings in Washington DC, the venue for our annual SDAE conference and membership meeting. At the annual banquet we honored Leonard Liggio for his contribution to the teaching of Austrian economics. Dick Wagner gave the presidential address. Both received a standing ovation.

The panels were well attended and, from what I could tell, the quality very high. I presented my paper on Entrepreneurial Paradoxes (which has been around for a while). Young Bak Choi commented on it and presented an interesting paper on the role of entrepreneurship in economic development and development policy. David Harper and Anthony Endres presented a paper on another variation on the theme of heterogeneous capital and its structure. Perhaps most interesting was a paper by a strategic management Ph.D candidate at York University, Mohammad Keyhani (co-authored with Moren Lévesque), on “The Role of Entrepreneurship in the Market Process: A Simulation Study of The Equilibrating and Disequilibrating Effects of Opportunity Creation and Discovery.” Randy Holcombe commented. Interesting that the issue of equilibration is considered important enough to investigate with simulations. But it raises some important questions. My own current view, having spent a lifetime contemplating the issue, is that we are no nearer an answer than we ever were, and that perhaps the more important distinction is between entrepreneurial actions that add value and those that do not.

Next year’s meetings will be in New Orleans. The president-elect of the SDAE is Larry White. He will be putting together the panels. So if you have an interest in presenting a paper, discussing one, or chairing a panel, let him know (

24 November 2011 at 12:15 am 7 comments

A Formal Model of Experimentation in Firms

| Peter Klein |

Following Knight, Mises, and Lachmann, we have often characterized entrepreneurship on this blog (and the McQuinn blog, which should be on your reading list) as experimentation with combinations of heterogeneous capital resources. Experimentation itself is relatively understudied in the entrepreneurship and strategy literature — we have general theories about the nature and effects of experimentation, indirect empirical evidence on competition as experimentation (e.g., my relatedness stuff with Lasse), case-study evidence about experimentation and innovation within firms, but don’t fully understand the exact mechanisms.

Here’s a new paper that will not be to everyone’s taste, but tries to get at these issues in a formal model of interaction between experimenting firms:

The Role of Information in Competitive Experimentation
Ufuk Akcigit, Qingmin Liu
NBER Working Paper No. 17602, November 2011

Technological progress is typically a result of trial-and-error research by competing firms. While some research paths lead to the innovation sought, others result in dead ends. Because firms benefit from their competitors working in the wrong direction, they do not reveal their dead-end findings. Time and resources are wasted on projects that other firms have already found to be dead ends. Consequently, technological progress is slowed down, and the society benefits from innovations with delay, if ever. To study this prevalent problem, we build a tractable two-arm bandit model with two competing firms. The risky arm could potentially lead to a dead end and the safe arm introduces further competition to make firms keep their dead-end findings private. We characterize the equilibrium in this decentralized environment and show that the equilibrium necessarily entails significant efficiency losses due to wasteful dead-end replication and a flight to safety — an early abandonment of the risky project. Finally, we design a dynamic mechanism where firms are incentivized to disclose their actions and share their private information in a timely manner. This mechanism restores efficiency and suggests a direction for welfare improvement.

21 November 2011 at 10:56 am Leave a comment

Causal Identification in Management Research

| Peter Klein |

Mike Ryall writes about the 2011 HBS strategy conference:

Of the empirical papers, almost half incorporated some method aimed at causal identification. My sense is that such identification strategies will soon become a fairly standard requirement for publication in a top management journal (“soon” being measured in academic time, of course).

We’ve discussed this issue several times, including a 2008 post on the potential tradeoffs between choosing problems that are well-identified and choosing problems that are important. I agree with Mike that the management and entrepreneurship literatures — at least the quantitative empirical part of those literatures — are catching up the economists here. But consider the advantages of backwardness: can management research learn to take identification seriously without falling into the Freakonomics trap? (Please, no Freakostrategy or Super-Freakopreneurship!)

Of course, management and entrepreneurship researchers, unlike most economists, tend to sympathize with (or at least tolerate) qualitative methods, and one legitimate means of generating causal inference is careful, detailed, historical investigation, case work, ethnography, analytical narrative, and so on. I suspect, though, that the trend Mike describes will tend to push these approaches to the side as well.

8 November 2011 at 1:07 pm 2 comments

The State of the US Economy

| Peter Klein |

According to the latest Kauffman Foundation survey of “top” economics bloggers. (I participate, so it’s not that exclusive a club.)

Full report available here. As Kauffman’s Tim Kane notes, “The economics blogging community has proven to be very insightful with rich and diverse viewpoints, but by nature they understand the importance of entrepreneurship because that’s ultimately who they are.” I agree, with the caveat that many of us don’t exactly have a lot of skin in the game. . . .

1 November 2011 at 10:41 am 2 comments

Self Employment, Entrepreneurship and Economic Growth

| Peter Lewin|

Interesting new monograph from the IEA (Institute of Economic Affairs) in the UK on: Self Employment, Small Firms and Enterprise. A pdf is available for free here. And here is the executive summary.


  • Self-employment is a form of contractual relationship which, in certain circumstances, will have greater benefits to the parties involved than an employer–employee relationship. Government intervention, however, may make selfemployment artificially more attractive by raising the costs of employment relationships.
  • Certain ethnic minority groups, older people and those without English as a first language tend to be overrepresented among the self-employed. This is partly because of the flexibility the arrangement provides but also because self-employment offers a ‘safety valve’ for those who find it difficult to find employment in the formal labour market.
  • It is vital that businesses are not impeded from moving from a situation where the owner is self-employed without employees to a situation where the business has employees. There is evidence that businesses are impeded in this way. In just nine years to 2009, the proportion of micro-businesses with employees fell by almost one fifth. At the same time the proportion of self-employed with no employees rose rapidly.
  • Women, individuals from certain ethnic groups, those with young dependants, those with low or no qualifications, those for whom English is not a first language and those who have recently experienced unemployment make up a much greater proportion of the workforce of small firms. For example, whereas 11 per cent of employees of small firms had no qualifications, only 4 per cent of employees of large firms had no qualifications.
  • Some workers will prefer to work for small firms because of the greater flexibility they offer in their working practices. In many cases, however, small firms will employ people who are talented but who are not able to negotiate the more formal recruitment processes of larger firms. Micro-businesses therefore perform an important economic and social function – employing people who might be overlooked by larger employers.
  • Genuine entrepreneurial insight and discovery tends to come from small firms. Entrepreneurship is crucial for economic growth. The nature of entrepreneurial insight is such, however, that we have no idea where it will come from – not even in the most general terms. Probably only one in every thousand ‘start-up’ firms will become one of the large businesses of the future.
  • Policies to promote entrepreneurship must come in the form of removing impediments to business and should not involve the promotion of particular business activities. It is simply not possible for government intervention to pick this tiny number of winners. All government can do is create a climate in which entrepreneurship can thrive.
  • The smallest firms are a key driver of job creation. Businesses do not start big. One quarter of employees working in firms that were established ten years earlier are working for firms that started from a position of employing only one person.
  • The cost of regulation has grown enormously over the last fifteen years. This particularly affects small firms with employees because regulatory costs act like a ‘poll tax’. Wide ranging exemptions from employment regulation and the minimum wage would be appropriate for small firms. Such exemptions would have the additional advantage of allowing the government to ‘experiment’ with deregulation. Standard terms and conditions of employment could be drawn up which would ensure that employees clearly understood the exemptions. Radical reforms of the tax system would also assist small firms which experience much greater compliance costs than large firms.
  • Moves by the government to promote entrepreneurship through the state education system or provide specific tax exemptions and reliefs for particular forms of business activity are wasteful or counterproductive.

20 October 2011 at 11:48 am 4 comments

Strategic Entrepreneurship Conference Starts Today!

| Peter Klein |

The SMG-McQuinn conference, “Multi- and Micro-Level Issues in Strategic Entrepreneurship,” starts today. Not sure if live-blogging will be feasible (“Nicolai Foss has stepped to the podium. Blue tie, white shirt. Scans the crowd….”) but we’ll post information when we can. The program is here. Some reflections on last year’s conference are here. Naturally Nicolai and I will be in book-promotion mode, hopefully not obnoxiously so.

Update: Per Bylund is doing some live blogging at the McQuinn blog.

13 October 2011 at 3:57 am 2 comments

New Book on the Austrian School from Austria, Featuring Schumpeter and Others

| Peter Lewin |

I am reading an interesting new book from the Mises Institute — The Austrian School of Economics: A History of its Ideas, Ambassadors, and Institutions by two living Austrian authors, Eugen Maria Schulak and Hebert Unterköfler. I will leave the task of a full-blown critical review to experts in the history of thought, but a few passing observations might be of interest to this audience.

One might wonder about yet another history of the Austrian School, but there may be a genuine claim for value-added here, certainly in my case. For one thing, this is a translation from the German edition, so the majority of the references are in German. We parochial English speakers often proceed in isolation from important contributions in other languages. I was struck for example by the volume of work Carl Menger has done in German that has never been translated. And this is the case with all of the usual suspects.

As it turns out, this is particularly important in one case: the case of Schumpeter’s Theory of Economic Development — to which one of the short chapters is devoted. The one English edition that exists is a translation of an earlier German edition. So it fails to capture many aspects of Schumpeter’s later vision.

Many things derive from this early work, namely, Schumpeter’s entrepreneur, in its earliest incarnation (and its evolution in subsequent editions), the idea of the entrepreneur as the combiner of capital goods, and, of course, the notion of entrepreneurship bringing gales of “creative destruction.” The authors describe the development of the work through its various editions as Schumpeter matured as a scholar and became more confident, less nuanced, in his assertions. An example is his story of the business cycle — how the innovating entrepreneur was necessarily involved in “credit creation,” which thus precipitated a cycle (Richard Ebeling has recently done some interpretative work on this). At the time he first proposed this idea, he was vigorously criticized by Böhm-Bawerk and others — and our authors see this as the emergence of the first significant breech with the Austrian School. Dare I be so bold as to suggest that the contemporaries might have gotten it wrong, and, along the lines of Ebeling’s interpretation (reference below, also see my blog here and here), that Schumpeter may be understood more plausibly within a modern central bank institutional setting as hatching a variation of the Austrian Business Cycle story? (more…)

11 October 2011 at 10:35 pm 5 comments

Now Ready for Pre-Order!

| Peter Klein |

This is a placeholder page without much detail, but you can pre-order today! The best news is the price: just £55.00 for the hardback and a mere £19.99 for the paperback — less than a family outing to the cinema, and far more rewarding!

10 October 2011 at 8:33 am 11 comments

Dissing Apple, Loving Steve

| Peter Klein |

Like so many others, I was deeply saddened to learn today about the passing of Steve Jobs. Jobs was a great entrepreneur, a visionary, a social benefactor. Business leaders like Steve Jobs  do more good for humanity than most of the do-gooders put together.

In memory of Steve, Apple fans are sharing their memories of Apple products, listing how many Macs they’ve owned, reminiscing about their first Apple II the way they talk about their first kiss. I’m not one of those. Indeed, I don’t much care for Apple products. I used an Apple II as a teenager, and currently own an iPad, the only Apple product I’ve ever bought. Steve Jobs made a particular kind of device — beautiful, specialized, simple to operate, but expensive, impossible to customize, frustrating to use if you want to use it in a different way than Steve intended. That’s fine — à chacun son goût. Isn’t that the beauty of capitalism? Markets aren’t winner-take all. Neither Steve Jobs nor Bill Gates nor Linus Torvalds nor anyone else decided what products we all should use and made us use them. We didn’t vote for our favorite computer or music player or phone, then all get the one that 51% of the voters preferred. No, we can all have the goods and services we like.

I don’t like Apple products, but I love the fact that other people like them, and that people like Steve Jobs provided them. R.I.P.

Addendum: Steve Horwitz makes the same point.

6 October 2011 at 5:51 am 8 comments


| Peter Klein |

Kudos to former guest blogger David Gerard for helping organize and host the conference with the über-cool name, Schumptoberfest, 21-23 October at Lawrence University in Appleton, Wisconsin. David Hounshell is giving the keynote address, and the rest looks good too.

4 October 2011 at 5:38 pm Leave a comment


| Peter Klein |

A new group blog by Erik Brynjolfsson, Joshua Gans, and Shane Greenstein. Should be interesting and informative. The authors

noticed that there were many blogs devoted to digital developments and consumer products but the selection focussing on economic and business aspects of the digital world was very limited. Digitopoly’s mission is to provide an economic and strategic management perspective on digital opportunities, trends, limits, trade-offs and platforms; expanding commentary in this important space.

The blog’s name — Digitopoly — reflects our broad interests in the impact of digital technology on competition. While, in some cases, our concern is the preservation of competition in the face of pressures toward monopoly, in others we see opportunities for greater competition and welfare benefits.

Our logo is deliberately iconic. The heavy set line in the graph could represent Moore’s Law (for processing power as time progresses) or Metcalfe’s Law (for the value of networks as more join).  It overtakes the simple linear trend represented by thin, broken line. This reflects the idea that linear ways of thinking rarely serve us well in the digital economy.

28 September 2011 at 2:39 pm Leave a comment

AoM Slides

| Peter Klein |

Thanks to Peter L. for his report on the “Austrian Economics and Entrepreneurship Studies” PDW at the Academy of Management conference. Here, for your viewing pleasure, are the slides: my opening remarks on the origins and development of the Austrian school, Henrik’s discussion of Israel Kirzner and his influence on entrepreneurship scholarship, and Todd’s presentation on Ludwig Lachmann’s unique approach. Enjoy!

27 August 2011 at 3:47 pm 3 comments

AOM 2011

| Peter Klein |

The Academy of Management conference in San Antonio is in full swing, with lots of interesting activities for O&Mers. Friday I co-facilitated the theory workshop for the Entrepreneurship Division Doctoral Consortium (slides here), and Peter Lewin and I participated yesterday in a great Professional Development Workshop on the role of Austrian economics in entrepreneurship research. Today O&M friend Joe Mahoney will receive the Irwin Outstanding Educator Award. And there are paper sessions, roundtables, keynotes, and other events dealing with organizational design, entrepreneurship, strategy, innovation, regulation, and other topics near and dear to our collective hearts. A good time is being had by all!

14 August 2011 at 3:10 pm 4 comments

Entrepreneurship in Africa

| Dick Langlois |

Inspired by Peter Lewin’s recent post on the beauty of Africa, I decided to hop on a plane to Peter’s native South Africa. I haven’t been to a wildlife park, though I have found myself twice down in caves, one containing fossils and one a disused gold mine. I also took in the Apartheid Museum, which seemed to me (as an outsider) to be extremely well done. It didn’t pull any punches but always appeared neutral, even analytical. For me, the museum’s story underscored the point that Walter Williams and others always used to argue while apartheid was going on: that the system required, and was implemented through, central planning and massive government intervention in markets. (Apparently they even had a wacky scheme to move people from their distant segregated homes to and from urban work using high-speed bullet trains.) I was struck by how similar the revolution here was to the contemporaneous one in Eastern Europe. It was a revolt by a middle class that was denied human and political rights — and also economic opportunity — by an increasingly inefficient and distortive state apparatus.

A couple of exhibits at the Apartheid Museum asserted that in the heyday of gold mining the British had “fixed the price of gold.” This price fixing forced the mine owners constantly to lower production costs, which they did by deskilling mining operations – using technology to break the process into simpler tasks (Ames and Rosenberg 1965) — in order to hire cheaper labor. By contrast, the mining museum suggested that there was plenty of skill-enhancing innovation as well, like pneumatic drills replacing the hammer and chisel, which reduced from eight hours to five minutes the time it took a worker to carve out a blasting hole.

Oddly, neither museum mentioned that gold was the monetary standard. (You know this already: it’s not that the “price of gold” was fixed; it’s that the value of the currency was defined in terms of units of gold.) This might sound like an economist’s carping. But I mention it because on this trip I also encountered the strange combination of task design and monetary economics in a strikingly different African context. I’m actually in south Africa not primarily for the tourism (at least in principle) but to visit Giampaolo Garzarelli and his Institutions and Political Economy Group at the University of the Witwatersrand and, as Peter Klein mentioned in an earlier post, to attend a conference on “Open Source, Innovation, and New Organizational Forms,” which took place on Monday. Joel West, another of the participants, has already blogged elsewhere about the conference. One paper, by an MA student from Kenya – Joel has already blogged about this as well – discussed an amazing phenomenon I had never heard about before: crowdsourcing in developing countries using mobile phones. A company called txteagle allows customers to outsource cognitive work by breaking tasks into small pieces, which pieces are then sent to participants via text message. (As phones have become cheaper they have become ubiquitous in the developing world.) For example, the participant could be asked to translate a phrase into his or her local language or to transcribe a voice snippet. The txteagle computers then aggregate the output and use redundancy and artificial intelligence to validate the results. The participant is paid for the task, via the same mobile phone, using M-Pesa, a system I first heard about only a couple of weeks ago. Interestingly, M-Pesa is itself a formalization of a spontaneous monetary system – think cigarettes at a prison camp – in which people without access to banks would save and transact in airtime minutes. The amount a participant can earn in this system is quite meaningful in the context of poor countries with high unemployment.

6 August 2011 at 10:01 am 7 comments

Older Posts Newer Posts


Nicolai J. Foss | home | posts
Peter G. Klein | home | posts
Richard Langlois | home | posts
Lasse B. Lien | home | posts


Former Guests | posts


Recent Posts



Our Recent Books

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).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
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).


Get every new post delivered to your Inbox.

Join 241 other followers