Entrepreneurship in the Theory of the Firm

39 Pages Posted: 26 Aug 2009 Last revised: 3 Nov 2009

Philip E. Auerswald

George Mason University - Schar School of Government and Policy

Date Written: August 3, 2006

Abstract

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.

Keywords: complexity, entrepreneurship, growth, intrafirm externalities, opportunity, production recipes, spillovers, theory of the firm

JEL Classification: D20, D21, D23, L26, O14, O30, O31

Suggested Citation

Auerswald, Philip E., Entrepreneurship in the Theory of the Firm (August 3, 2006). Small Business Economics, Vol. 30, No. 2, pp. 111-126, March 2007. Available at SSRN: https://ssrn.com/abstract=1462278

Philip Edgar Auerswald (Contact Author)

George Mason University - Schar School of Government and Policy ( email )

3351 Fairfax Dr.
Arlington, VA 22201
United States

HOME PAGE: http://auerswald.org

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