39 Pages Posted: 26 Aug 2009 Last revised: 3 Nov 2009
Date Written: August 3, 2006
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: 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