Entrepreneurship in the Theory of the Firm
Philip E. Auerswald
George Mason University , School of Public Policy; Belfer Center for Science and International Affairs, Kennedy School of Government, Harvard University
August 3, 2006
Small Business Economics, Vol. 30, No. 2, pp. 111-126, March 2007
This paper develops microeconomic foundations for a theory of entrepreneurship and growth, focusing on innovation and opportunity as intermediate linkages between the two. Expanding upon points of tangency between Schumpeter and Coase, the paper argues that transactions costs are the glue that holds together entrepreneurial 'new combinations.' Technological/organizational complexity of production is defined as the extent to which a technical decision by one unit within the firm affects the productive efficiency of other units. Where decreasing transactions costs tend to pull incumbent organizations apart, the possession of difficult to imitate production practices by the same organizations keeps them together. The dissolution of incumbent firms creates opportunities for entrepreneurs; the prospect of Schumpeterian rents provides the incentive to realize those opportunities.
Number of Pages in PDF File: 39
Keywords: complexity, entrepreneurship, growth, intrafirm externalities, opportunity, production recipes, spillovers, theory of the firm
JEL Classification: D20, D21, D23, L26, O14, O30, O31Accepted Paper Series
Date posted: August 26, 2009 ; Last revised: November 3, 2009
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