Posts filed under ‘Entrepreneurship’
Dissing the Corporation
| Peter Klein |
Several papers in economic history, law, and political economy argue that the corporate form owes its emergence and persistence not to superior performance, but to legal privilege. This two-part series by Piet-Hein van Eeghen in the Journal of Libertarian Studies (1, 2) makes such a case, as do many essays by regular O&M commentator Kevin Carson. I tend to be somewhat skeptical of this literature, finding it insufficiently comparative institutional and not always consistent with the historical record as I understand it.
A new paper by Naomi Lamoreaux, whose work I very much admire, may force me to rethink my views, however. In “Putting the Corporation in its Place” (NBER Working Paper No. 13109) Lamoreaux and her coauthors Timothy Guinnane, Ron Harris, and Jean-Laurent Rosenthal argue that entrepreneurs in common-law countries tended to choose the corporate form over the next-best alternative, the partnership, only because a still more desirable alternative, the private limited liability company, was not available. (more…)
More on Eship and Transaction Costs
| Nicolai Foss |
As indicated here, I believe that transaction costs are key antecedents to opportunity discovery, that is, the exercise of entrepreneurship. The costs of establishing property rights to new discoveries, and the costs of combining and recombining resources, all transaction costs, influence which discoveries will be made. Here (or here) is an entirely different way of relating transaction costs and entrepreneurship, namely Steven Michael’s “Transaction Cost Entrepreneurship” which focus on transacting problems in the entrepreneur/consumer (user) interface. A fine piece that is highly recommended. Here is the abstract:
When offering a novel product, the entrepreneur desires the customer to choose to “buy” (from the entrepreneur) rather than to “make.” Transaction cost economics provides guidance to firms considering a make-versus-buy decision. In this paper we extend transaction cost economics to examine the novel transactions proposed by the entrepreneur. Application of the theory identifies three crucial considerations for the transaction: the cost of quality measurement, the risk of overconfidence by the entrepreneur (here termed identity risk), and the required cost of necessary transaction specific assets. By extending transaction cost analysis to cover novel transactions across customers, entrepreneurship can be analyzed using established theories and measures to generate novel propositions.
JC Spender Wonders …
| Nicolai Foss |
He mails this: “Why did Ted Schultz, a Nobel winner, in his 1961 Presidential Address to the American Economic Association, “Investment in Human Capital,” not reference any of Solow’s work — for which, after all he too was awarded the Nobel?” A very good question!
SDAE Sessions
| Peter Klein |
Sessions from the SDAE section of the upcoming Southern Economic Association annual meeting (New Orleans, 18-20 2007) that may interest our readers:
- Peter Lewin (University of Texas at Dallas) and Howard Baetjer Jr. (Towson University),“Can Ideas be Capital? Can Capital Be Anything Else?”
- Per-Olof Bjuggren and Johanna Palmberg (Jönköpings International Business School), “Swedish Listed Family Firms and Entrepreneurial Spirit”
- Joseph T. Salerno (Pace University), “The Entrepreneur: Real and Imagined” (more…)
Summary of Kirzner’s Contributions
| Peter Klein |
Israel Kirzner received the 2006 International Award for Entrepreneurship and Small Business Research. Here is an article by Robin Douhan, Gunnar Eliasson, and Magnus Henrekson from the current issue of Small Business Economics summarizing Kirzner’s contributions to entrepreneurship theory.
Men of Wealth
| Peter Klein |
John T. Flynn’s 1941 classic Men of Wealth is back in print, courtesy of the Mises Institute. I’ve had an old copy on my shelf for years, having once stumbled across a rare first edition at Bell’s Books in Palo Alto. The book profiles Jacob Fugger, John Law, the Rothschilds, Robert Owen, Cornelius Vanderbilt, Henry Green, Hachirobei Mitsui, Cecil Rhodes, Basil Zaharoff, Mark Hanna, John D. Rockefeller, and J. Pierpont Morgan. Unlike the typical business history text (ahem), it is written in a lively and engaging style. To get the flavor, consider this excerpt from chapter 9 on the little-known but highly influential arms dealer Basil Zaharoff:
Zaharoff played a leading, if not the leading, role in that strange world comedy of the arms makers leading the double life of chauvinists and internationalists. They gave us the spectacle of Boers mowing down English regiments with Vickers’ pom-poms, Prussian surgeons picking out of Prussian wounded Austrian shrapnel fired by Krupp’s cannon, French poilus massacred by shot poured out of guns made in Le Creusot, English Tommies killed by weapons produced by Armstrong and Vickers, and American ships sent to the bottom by U-boats built on models supplied by American submarine builders. Zaharoff was the master of what one biographer has called the “principle of incitement,”under which war scares were managed, enemies created for nations, airplanes sold to one nation and antiaircraft guns to her neighbors, submarines to one and destroyers to another. He did what the cigarette people did, what the liquor industry, the beauty industry did — created a demand for his merchandise. The armament industry became a game of international politics, the arms salesman a diplomatic provocateur, the munitions magnates of all nations partners in cartels, combines, consolidations; exchanging plans, secrets, patents. He was the greatest of all the salesmen of death, and, as one commentator has observed, if you would see his monument, look about you at the military graveyards of Europe.
You can read the rest of the chapter here.
Two Entrepreneurship Papers
| Peter Klein |
- “International Financial Integration and Entrepreneurial Firm Activity” by Laura Alfaro and Andrew Charlton. Evidence from a large cross-country dataset establishes a strong correlation between entrepreneurial activity (what I call “structural entrepreneurship,” the proportion of new and small firms to total firms) and various measures of international financial integration. Suggests that international capital flows are good for economic growth (take that, neo-mercantilists!). See Maury Obstfeld’s 1998 JEP paper for some background.
- “Charles Le Maistre: Entrepreneur in International Standardization” by JoAnne Yates and Craig Murphy. Le Maistre was a pioneer of voluntary, international cooperation on technical standards. Summarizing Le Maistre’s accomplishments, Yates and Murphy argue that “industrial standardization, usually thought of as a staid field that limits, rather than promotes, innovation, is populated by multiple individuals who can be seen as entrepreneurs of standardization, either in a particular technical arena or on a broader, organizational level. “
Entrepreneurship, Arbitrage, and Capital
| Peter Klein |
Over the years I’m increasingly convinced that Israel Kirzner’s metaphor of entrepreneurship as costless discovery — a form of arbitrage, exploiting differences between actual prices and their Walrasian equilibrium values — is a misleading way to think about entrepreneurship. Emphasizing knowledge, the awareness of facts that other market participants do not possess, the metaphor leads our attention away from action, the employment of scarce means to achieve economic ends. I’ve argued in a series of papers (1, 2, 3) that opportunity exploitation, not opportunity discovery, drives the market process.
A key problem for the Kirznerian metaphor is that entrepreneurship does, in practice, involve capital investment, despite Kirzner’s insistence that “pure entrepreneurship” does not require ownership of resources. (As Joe Salerno reminds us, favorable reviews of Kirzner’s Competition and Entrepreneurship by Austrians Murray Rothbard, Henry Hazlitt, and Percy Greaves all pointed to the separation of entrepreneurship and property ownership as the lone weakness in Kirzner’s otherwise excellent exposition.) But what about financial-market arbitrage, an example often cited in the Kirznerian literature? Isn’t arbitrage an example of costless discovery of pure profit? Doesn’t the arbitrageur operate without capital? (more…)
São Paulo Workshop on Institutions and Organizations
| Peter Klein |
Three Brazilian institutions — Fundação Getúlio Vargas São Paulo, IBMEC São Paulo, and the University of São Paulo — are jointly sponsoring a “Research Workshop on Institutions and Organizations” in São Paulo, 2-4 September 2007. Keynote speakers are Jackson Nickerson, Armando Castelar, and me. From the blurb:
Seminar participants will discuss recent developments in the analysis of institutions and organizations through the lenses of Economics, Management, Sociology, Law and other social sciences. Instead of focusing on the contributions of specific disciplines dealing with institutions and organizations, workshop participants will emphasize differences and commonalities among different approaches, leading to potential advances and refinements in the field.
Here is registration information and a preliminary schedule.
Austrian Economics at the AoM
| Peter Klein |
Last week’s Academy of Management meeting featured a pre-conference workshop, “The Austrian School of Economics: Applications to Organization, Strategy, and Entrepreneurship,” organized by Nicolai and myself. I began with an overview of the Austrian approach and reviewed some of the key figures in its development. Panelists Joe Mahoney, Yasemin Kor, Dick Langlois, Nicolai, and Elaine Mosakowski each gave some prepared remarks about aspects of the Austrian tradition that apply to their work, followed by general discussion among the panelists and the audience. Here are copies of the prepared remarks and here are some photos (courtesy of Peter Hofherr).
We weren’t sure what to expect — a dozen or so participants, perhaps? — and were delighted when over 100 people showed up, leaving standing room only. This and other indicators suggest growing interest in Austrian economics among management scholars. Of course, a belief in the relevance of the Austrian approach to business administration is a core value here at O&M.
Schumpeter Podcast
| Peter Klein |
Bloomberg’s Tom Keene interviews Thomas McCraw on his new book Prophet of Innovation: Joseph Schumpeter and Creative Destruction. McCraw discusses Schumpeter’s relationship with Keynes, the impact of Schumpeter’s concept of the entrepreneur, the legacy of Alfred Chandler, and more.
Thoughts on Entrepreneurship Research
| Peter Klein |
The Academy of Management Annual Meeting has been a great success. I’ll blog later about the pre-conference workshop on Austrian economics organized by Nicolai and myself and a few other sessions I participated in. For now I want to share some thoughts on entrepreneurship research drawn from my discussant’s remarks at a session featuring papers by Ciaran Heavey, Zeki Simsek, and Aidan Kelly (“Environmental Scanning and Corporate Entrepreneurship in SME”), Thomas Dalziel, Robert White, and Jonathan Arthurs (“The Influence of Top Management Team Human and Relational Capital on Corporate Entrepreneurship”), Frederic Delmar and Erik Wetter (“The Predictive Strength of Absorptive Capacity on New Firm Performance”), and Brent Ross and Randall Westgren (“The Dynamics of Rent Creation on a Strategic Landscape”). The first three are empirical papers explaining firms’ “entrepreneurial” activity in terms of manager and worker characteristics, while the last one uses an agent-based simulation model to examine the effects of the competitive environment on entrepreneurial behavior.
1. Concepts and definitions of entrepreneurship are all over the map, ranging from abstract notions of alertness, judgment, innovation, and what Ross and Westgren (borrowing from March and Simon, 1958) term “aspiration,” the level of certain returns a firm is willing to forgo for the prospect of uncertain future returns, to concrete measures of R&D expenditures, patent activity, new venture creation, and strategic reorganization. Within the corporate entrepreneurship literature there seems to be a consensus that a composite measure of innovation, venturing, and strategic renewal is appropriate. Of course, one can quibble about these as unique proxies for entrepreneurship because mundane, but equally “entrepreneurial,” activities (production, sales, marketing, and so on) are excluded. (more…)
The Efficient Markets Hypothesis: Web Design Edition
| Peter Klein |
A few years back, web designer Matt Jones coined the term lazyweb — the notion that there are so many other smart people out there working on the web alongside you, and that if you wait long enough, someone else will write, build, or design that cool thing you were thinking about, and save you the bother of doing the actual work.
This is from Mike Gunderloy, who obviously does not subscribe to the Kirznerian or Knightian versions of the efficient sidewalk theory. To be fair, he’s not talking about final goods (Why bother to make and sell something when someone else will have already made and sold it?) but intermediate goods (Why make something myself when I can free ride on the efforts of others?). Naturally we fully endorse such free riding.
Estimating the Value of Creative Invention
| Chihmao Hsieh |
One final bit of shameless self-promotion, as I soon head off into the figurative sunset from all this blogging: an empirically-oriented working paper of mine entitled “The Identification of Opportunities and the Value of Invention” can now be found here at SSRN. Any comments or suggestions are absolutely welcomed! Description of the research lies below. (more…)
“Made in China”: The Name of a Creative Firm
| Chihmao Hsieh |
Today I received in the mail a sample issue of Fast Company. The cover story — full-text version found here — describes a China that is dramatically shifting from a country of copycat and imitation to a country of creativity and inventiveness. While its education system “does little to inspire,” and both government censorship and a very weak IPR policy do little to help support creativity, China’s younger citizens (e.g., aged 15-35) are finding and institutionalizing platforms to make themselves heard. And yes, the article mentions a London-based creative agency named “Made In China.”
Human ATMs
| Peter Klein |
As economies grow they tend to substitute capital for labor. Hence the literature on the social effects of technological change focuses on labor displacement and absorption. But what happens when a capital-intensive process appears in a developing economy where labor is cheap?
Here’s a fascinating example of labor displacing capital: a Ugandan financial institution has created an ATM network without ATMs. The machines are too expensive to put in rural areas, so the bank contracts with local shopkeepers who receive and disburse currency using inexpensive smart-card readers linked wirelessly to a central database. (HT: Timbuktu Chronicles)
If this catches on, will we see despondent ATM terminals wandering the streets like that poor robot in the GM Super Bowl commercial?
Should We Axe the (US) Small Business Administration?
| Peter Klein |
The entries don’t have references, but there is a large literature on small business lending. See in particular papers by Phil Strahan here and here, showing that bank deregulation and consolidation has helped small business lending and entrepreneurship.
No, Innovation is Not Overrated
| Chihmao Hsieh |
This is posted in response to the book commentary within Peter’s post. If the indented synopsis indeed captures the book’s main thesis, it might be “concise and elegant,” and “provocative” to a person crawling out from underneath prehistoric rock, but suffice it to say it’s about as far from innovative (hmm, how ironic) as it gets. Some might call it the result of being direly underinformed.
What’s technological innovation for? Aside from a few exceptions, and aside from nuances introduced by incentives, technological innovation serves to support and appeal to our physical well-being,* emotional well-being, and psychological well-being in the context of a (limited) 70-100+ yr life span. Full stop. (So O&M founder Nicolai Foss has been passing around a thought-provoking working paper addressing the nature of opportunities, one example cited therein describing the technology of the barbed wire fence. Is the barbed wire fence an invention that appeals to those three sources of well-being? Not directly, it seems. But it is elementary to conclude that its absence would reduce our capability to feed ourselves, which does support physical well-being.) (more…)
Entrepreneurs are Both Born and Made, in the Interactional Sense
| Chihmao Hsieh |
Well, I’ve coddled this paper long enough, perhaps I should begin to set it free amidst that bit of shameless self-promotion. In a manuscript entitled “Cognition and the interaction between traits and training: the entrepreneur is both born and made,” I argue and provide evidence that an individual’s intelligence and the mode by which they train in multiple domains interact to determine the probability of self-employment. Not yet inclined to throw this up on SSRN just yet, but certainly happy to forward along a copy to interested parties (in hopes of receiving comments!). Just email me at hsiehc at umr dot edu… Below is the long abstract. (more…)
Kauffman Data Symposium
| Peter Klein |
The Kauffman Foundation is sponsoring a symposium on entrepreneurship and innovation data November 2-3 in Kansas City. The website indicates that seating capacity is filled, but proceedings and information on datasets will be available on the site. Mike Sykuta and I will give a presentation on the CORI contracts library.
Innovation manifests itself in different ways, and empirical researchers have used data on patent rates, R&D expenditure, new product introductions, and similar phenomena to measure it. On entrepreneurship data, however, there is far less consensus. In part this results from widely varying conceptions of what entrepreneurship is. Self-employment rates, the number of business startups, the ratio of small firms to large firms, and the like are measurable, but do they correspond to entrepreneurship? If entrepreneurship is alertness, adaptation, innovation, or — my favored concept — judgment, then occupational and structural measures may not capture it very cleanly.
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