University of Missouri
AE 8001/9001
Economics of Entrepreneurship: Theory, Applications, Debate
Spring 2013
Instructor:
Peter G. Klein
Division of Applied Social Sciences
135 Mumford Hall
kleinp@missouri.edu
573 882 7008
Meeting time and place: Thursdays 9:30am-12:00pm, 136 Mumford Hall
Course overview
Entrepreneurship is one of the fastest-growing fields within economics, management,
organization theory, finance, and even law. Surprisingly, however, while the entrepreneur is
fundamentally an economic agent—the “driving force of the market,” in Mises’s (1949, p. 249)
phrase—modern theories of economic organization and strategy maintain an ambivalent
relationship with entrepreneurship. It is widely recognized that entrepreneurship is somehow
important, but there is little consensus about how the entrepreneurial role should be modeled and
incorporated into economics and strategy. Indeed, the most important works in the economic
literature on entrepreneurship—Schumpeter’s account of innovation, Knight’s theory of profit,
and Kirzner’s analysis of entrepreneurial discovery—are viewed as interesting, but idiosyncratic
insights that do not easily generalize to other contexts and problems.
The awkward relationship between mainstream economics and entrepreneurship makes sense in
the context of the development of the neoclassical theory of production and the firm. The
increasingly formalized treatment of markets, notably in the form of general equilibrium theory,
not only made firms increasingly “passive,” it also made the model of the firm increasingly
stylized and anonymous, doing away with those dynamic aspects of markets that are most
closely related to entrepreneurship (O’Brien, 1984). In particular, the development of what came
to be known as the “production function view” (Williamson, 1985; Langlois and Foss, 1999)—
roughly, the firm as it is presented in intermediate microeconomics textbooks with its fully
transparent production possibility sets—was a deathblow to the economic theory of
entrepreneurship. If any firm can do what any other firm does (Demsetz, 1988), if all firms are
always on their production possibility frontiers, and if firms always make optimal choices of
input combinations and output levels, then there is nothing for the entrepreneur to do. Even in
more advanced models of asymmetric production functions, hidden characteristics, and strategic
interaction, firms or agents are modeled as behaving according to fixed rules subject to
formalization by the analyst. The entrepreneur makes an occasional appearance in business
history and in Schumpeterian models of innovation and technical change, but is largely absent
from contemporary economic theory.
This course presents a wide-ranging overview of the place of entrepreneurship in economic
theory, with a special focus on applications to institutions, organizations, strategy, economic
development, and related fields. It is intended for PhD students trained in economics, sociology,
business administration, or a similar field (subject to instructor permission). Students are
expected to be in at least their second year of their PhD program and to be working on a
dissertation, or looking for a suitable dissertation topic. This is a research-oriented class in which
students take an active role identifying suitable articles and topics for analysis, leading course
discussions, and evaluating themselves and their peers.
Enrollment is subject to prior consent of the instructor.
Assignments and grading
The course grade will be based on class participation and a course paper. The paper should be
either a self-contained research paper, suitable for potential submission to a refereed academic
journal, or a draft of a dissertation prospectus (or other material designed to go into the
dissertation). More details about the paper will be provided during the semester. The paper will
count for 66 percent of the final grade and class participation the remaining 33 percent.
Grades will be given on an A–F scale.
Academic honesty
Academic honesty is fundamental to the activities and principles of a university. All members of
the academic community must be confident that each person's work has been responsibly and
honorably acquired, developed, and presented. Any effort to gain an advantage not given to all
students is dishonest whether or not the effort is successful. The academic community regards
academic dishonesty as an extremely serious matter, with serious consequences that range from
probation to expulsion. When in doubt about plagiarism, paraphrasing, quoting, or collaboration,
consult the course coordinator.
Special needs
If you need accommodations because of a disability, if you have emergency medical information
to share with me, or if you need special arrangements in case the building must be evacuated,
please inform me immediately. Please see me privately after class, or at my office.
To request academic accommodations (for example, a note taker or extended time on exams),
students must also register with the Office of Disability Services
(http://disabilityservices.missouri.edu), S5 Memorial Union, 882-4696. It is the campus office
responsible for reviewing documentation provided by students requesting academic
accommodations, and for accommodations planning in cooperation with students and instructors,
as needed and consistent with course requirements. For other MU resources for students with
disabilities, click on "Disability Resources" on the MU homepage.
Course outline and readings
General texts:
Shane, Scott. 2003. A General Theory of Entrepreneurship: The Individual-Opportunity Nexus.
Cheltenham, U.K.: Edward Elgar.
Parker, Simon C. 2004. The Economics of Self-Employment and Entrepreneurship. Cambridge:
Cambridge University Press.
Hébert, Robert F., and Albert N. Link. 1988. The Entrepreneur: Mainstream Views and Radical
Critique. Second edition, New York: Praeger.
Acs, Zoltan J., and David B. Audretsch. 2003. Handbook of Entrepreneurship Research: An
Interdisciplinary Survey and Introduction. New York: Springer.
Agarwal, Rajshree, Sharon A. Alvarez, and Olav Sorenson, eds. 2005. Handbook of
Entrepreneurship Research: Disciplinary Perspectives. New York: Springer.
Foss, Nicolai J., and Peter G. Klein. 2012. Organizing Entrepreneurial Judgment: A New
Approach to the Firm. Cambridge: Cambridge University Press.
Weekly schedule (preliminary and subject to change)
Part 1: Introduction
Week 1: Introduction: occupational, structural, and functional approaches to entrepreneurship
•
Klein, Peter G. 2008. “Opportunity Discovery, Entrepreneurial Action, and Economic
Organization.” Strategic Entrepreneurship Journal 2: 175-90.
•
Optional: Shane, chapter 1.
•
Shane, Scott, and Sankaran Venkataraman. 2000. “The Promise of Entrepreneurship as a
Field of Research.” Academy of Management Review 25: 217–26.
•
Optional: “Dialogue” section in January 2013 issue of Academy of Management Review.
•
Optional: Parker, chapter 2.
•
Baumol, William J. 1968. “Entrepreneurship in Economic Theory.” American Economic
Review 58: 64–71.
•
Optional: Elkjaer, Joergen R. 1991. “The Entrepreneur in Economic Theory: An Example
of the Development and Influence of a Concept.” History of European Ideas 13: 805–15.
Part 2: Classic contributions to entrepreneurship theory
Week 2: Cantillon, the Physiocrats, and the British Classical School
•
Cantillon, Richard. 1755. Essai sur la nature de commerce en géneral. Henry Higgs, ed.
London: Macmillan, 1931.
•
Hoselitz, Bert F. 1951. “The Early History of Entrepreneurial Theory.” Explorations in
Entrepreneurial History 3: 193–220. Reprinted Joseph J. Spengler and William R. Allen,
eds., Essays in Economic Thought: Aristotle to Marshall. Chicago: Rand McNally &
Company, 1960, pp. 234-57.
•
Hébert and Link, chapter 1–5.
Week 3: Carl Menger and the early Austrian school
•
Menger, Carl. 1871. Principles of Economics. Auburn, Ala.: Mises Institute, 2007. Read
pp. 157–74, skim the rest.
•
Hayek, F.A. 1968. “Competition as a Discovery Procedure.” New translation, Quarterly
Journal of Austrian Economics 6, no. 3 (2002): 9–23.
•
Foss, Nicolai J., and Peter G. Klein. 2010 “Entrepreneurial Alertness.” In Hans
Landström and Franz Lohrke, eds., The Historical Foundations of Entrepreneurship
Research. Cheltenham: Edward Elgar, pp. 98-120.
Week 4: Schumpeter and the economics of innovation
•
Schumpeter, Joseph A. 1942. Capitalism, Socialism, and Democracy. London:
Routledge, 1994. Read chapter 7, “The Process of Creative Destruction.”
•
Knudsen, Thorbjørn, and Markus C. Becker. 2003. “The Entrepreneur at a Crucial
Juncture in Schumpeter’s Work: Schumpeter's 1928 Handbook Entry Entrepreneur.”
Advances in Austrian Economics 6: 199–234.
•
Knudsen, Thorbjørn, and Markus C. Becker. 2003. “Joseph A. Schumpeter:
Unternehmer.” Translation. Advances in Austrian Economics 6: 235–66.
•
Acs, Zoltan J., and David B. Audretsch. 2003. “Innovation and Technological Change.”
Chapter 4 of Acs and Audretsch.
•
Baumol, William J. 2010. The Microtheory of Innovative Entrepreneurship. Princeton:
Princeton University Press. Read introduction, “Bringing Entrepreneurship and
Innovation into the Theory of Value,” pp. 1–8.
Week 5: Knight, entrepreneurial judgment, and the firm
•
Knight, Frank H. 1921. Risk, Uncertainty, and Profit. Boston: Hart, Schaffner, and Marx.
Read chapters III.VII, III.VIII, III.IX, and III.X. Online edition here.
•
Langlois, Richard N., and Metin Cosgel. 1993. “Frank Knight on Risk, Uncertainty, and
the Firm: A New Interpretation.” Economic Inquiry 31: 456–65.
•
Mises, Ludwig von. 1951. “Profit and Loss.” In Mises, Planning for Freedom. South
Holland, Ill.: Libertarian Press, 1952.
Week 4: Kirzner and entrepreneurial alertness
•
Kirzner, Israel M. 1973. Competition and Entrepreneurship. Chicago: University of
Chicago Press.
•
Kirzner, Israel M. 1997. “Entrepreneurial Discovery and the Competitive Market
Process: An Austrian Approach.” Journal of Economic Literature 35, no. 1: 60–85.
•
Rothbard, Murray N. 1985. “Professor Hébert on Entrepreneurship.” In idem., The Logic
of Action Two: Applications and Criticism from the Austrian School. Aldershott, U.K.:
Edward Elgar, 1997, pp. 245–53.
•
Kirzner, Israel M. 2009. “The Alert and Creative Entrepreneur: A Clarification.” Small
Business Economics 32, no. 2: 145–52.
•
Foss, Nicolai J., and Peter G. Klein. 2010. “Alertness, Action, and the Antecedents of
Entrepreneurship.” Journal of Private Enterprise 25, no. 2: 145–64.
Week 7: Schultz and adaptation
•
Klein, Peter G., and Michael L. Cook. 2006. “T. W. Schultz and the Human-Capital
Approach to Entrepreneurship.” Review of Agricultural Economics 28, no. 3: 344–50.
•
Schultz, T. W. 1975. “The Value of the Ability to Deal with Disequilibria.” Journal of
Economic Literature 13, no. 3: 827–46.
•
Schultz, T. W. 1979. “Concepts of Entrepreneurship and Agricultural Research.” Kaldor
Memorial Lecture, Iowa State University, October.
•
Schultz, T. W. 1982. “Investment in Entrepreneurial Ability.” Scandinavian Journal of
Economics 82, no. 4: 437–48.
Part 3: Modern perspectives and applications
Week 8: Occupational entrepreneurship: recent contributions
•
Parker, chapter 3.
•
Kihlstrom, Richard E., and Jean-Jacques Laffont. 1979. “A General Equilibrium
Entrepreneurial Theory of Firm Formation Based on Risk Aversion.” Journal of Political
Economy 87, no. 4: 719–48.
•
Hamilton, Bart. 2000. “Does Entrepreneurship Pay? An Empirical Analysis of the
Returns of Self-employment.” Journal of Political Economy 108: 604–31.
•
Greve, Arent , and Janet W. Salaff. 2003. “Social Networks and Entrepreneurship.”
Entrepreneurship Theory and Practice 28, no. 1: 1–22.
Week 9: The structural approach: causes and consequences of new-venture creation
•
Acs, Zoltan, and David B. Audretsch. 1990. Innovation and Small Firms. Cambridge,
Mass.: MIT Press. [skim]
•
Glaeser, Edward L., Sari Pekkala Kerr, and William R. Kerr. 2012. “Entrepreneurship
and Urban Growth: An Empirical Assessment with Historical Mines.” NBER Working
Paper No. 18333
Week 10: Entrepreneurship and finance
•
Gompers, Paul, and Josh Lerner. 2001. “The Venture Capital Revolution.” Journal of
Economic Perspectives 15, no. 2: 45–168.
•
Kaplan, Steven N., and Per Strömberg. 2003. “Financial Contracting Theory Meets the
Real World: An Empirical Analysis of Venture Capital Contracts.” Review of Economic
Studies 70, no. 2: 281–315.
Week 11: The opportunity-discovery perspective
•
Hills, G.E., G.T. Lumpkin, and R.P. Singh. 1997. “Opportunity Recognition: Perceptions
and Behaviors of Entrepreneurs.” Frontiers of Entrepreneurship Research 17: 168–82.
•
Gaglio, M., and J. A. Katz. 2001. “The Psychological Basis of Opportunity Identification:
Entrepreneurial Alertness.” Small Business Economics 16: 95–111.
•
Short, Jeremy C., David J. Ketchen, Christopher L. Shook, and R. Duane Ireland. 2010.
“The Concept of ‘Opportunity’ in Entrepreneurship Research: Past Accomplishments and
Future Challenges. Journal of Management 36: 40–65.
•
Alvarez, Sharon A., and Jay B. Barney. 2007. “Discovery and Creation: Alternative
Theories of Entrepreneurial Action.” Strategic Entrepreneurship Journal 1, nos. 1–2: 11–
26.
•
Davidsson, Per. 2012. Entrepreneurial opportunity and the entrepreneurship nexus: A
reconceptualization. Paper presented at the Academy of Management annual meeting,
Boston, MA.
Week 12: Entrepreneurship, heterogeneous capital, and the firm
•
Foss, Kirsten, Nicolai J. Foss, Peter G. Klein, and Sandra K. Klein. 2007. “The
Entrepreneurial Organization of Heterogeneous Capital.” Journal of Management Studies
44, no. 7: 1165–86.
•
Foss, Kirsten, Nicolai J. Foss, and Peter G. Klein. 2007. “Original and Derived Judgment:
An Entrepreneurial Theory of Economic Organization.” Organization Studies 28, no. 12:
1893–912.
•
Cook, Michael L., and Bradley Plunkett. 2006. “Collective Entrepreneurship: An
Emerging Phe-nomenon in Producer-Owned Organizations.” Journal of Agricultural and
Applied Economics 38, no 2: 421–28.
•
Foss, Kirsten, Nicolai J. Foss, Peter G. Klein, and Sandra K. Klein. 2007. “The
Entrepreneurial Organization of Heterogeneous Capital.” Journal of Management Studies
44, no.7: 1165–86.
Week 13: The institutional environment
•
Sobel, Russell S. 2008. “Testing Baumol: Institutional Quality and the Productivity of
Entrepreneurship.” Journal of Business Venturing 23, no. 6: 641–55.
•
Bjørnskov, Christian, and Nicolai Foss, 2008. “Economic Freedom and Entrepreneurial
Activity: Some Cross-Country Evidence.” Public Choice 134, no. 3: 307–28.
•
Kreft, Steven F., and Russell S. Sobel. 2005. “Public Policy, Entrepreneurship, and
Economic Freedom.” Cato Journal 25, no. 3: 595–616.
•
Xue, Jianhong, and Peter G. Klein, 2010. “Regional Determinants of Technology
Entrepreneurship.” International Journal of Entrepreneurial Venturing 1, no. 3: 291–308.
Week 14: Political entrepreneurship
•
Baumol, William J. 1990. “Entrepreneurship: Productive, Unproductive, and
Destructive.” Journal of Political Economy 98: 893–919.
•
Schneider, Marc, and Paul Teske. 1992. “Toward a Theory of the Political Entrepreneur:
Evidence from Local Government.” American Political Science Review 86: 737–47.
•
Holcombe, Randall. 1992. “Political Entrepreneurship and the Democratic Allocation of
Economic Resources.” Review of Austrian Economics 15: 143–59.
•
Klein, Peter G., Anita M. McGahan, Christos N. Pitelis, and Joseph T. Mahoney. 2010.
“Toward a Theory of Public Entrepreneurship.” European Management Review 7: 1–15.
Week 15: Entrepreneurial teams
•
Parker, Simon C. 2008. “The Economics of Formal Business Networks.” Journal of
Business Venturing 23: 627–40.
•
Cook, Michael L., Molly J. Burress, and Costas Iliopoulos. 2008. “New Producer
Strategies: The Emergence of Patron-Driven Entrepreneurship.” Working paper,
Department of Agricultural Economics, University of Missouri.
•
Kor, Yasemin Y. 2003. “Experience-Based Top Management Team Competence and
Sustained Growth.” Organization Science 14: 70719.
If time permits: Recent controversies
•
Manne, Henry G. 2011. “Entrepreneurship, Compensation, and the Corporation.”
Quarterly Journal of Austrian Economics 14, no. 1: 3–24.
•
Salerno, Joseph T. 2007. “The Entrepreneur: Real and Imagined.” Working paper, Mises
Institute.
•
Witt, Ulrich. 1998a. “Imagination and Leadership: the Neglected Dimension of an
Evolutionary Theory of the Firm.” Journal of Economic Behavior and Organization 35:
161–77.
•
Klein, Peter G. 1999. “Entrepreneurship and Corporate Governance.” Quarterly Journal
of Austrian Economics 2, no. 2: 19–42.
•
McMullen, Jeffery S. and Shepherd, Dean A. 2006. “Entrepreneurial Action and Role of
Uncertainty in the Theory of the Entrepreneur.” Academy of Management Review 31,
no. 1: 132–52.
•
Chiles, Todd H., Allen C. Bluedorn, and Vishal K. Gupta. 2007. “Beyond Creative
Destruction and Entrepreneurial Discovery: A Radical Austrian Approach to
Entrepreneurship.” Organization Studies 28: 467–93.