Entrepreneurship in Economic Theory

Posted: 17 Nov 2009

See all articles by William J. Baumol

William J. Baumol

New York University - Stern School of Business, Berkley Center for Entrepreneurial Studies; Leonard N. Stern School of Business - Department of Economics

Date Written: 1968

Abstract

Examines the historic inability of economic theory to develop a formal analysis of entrepreneurship. The entrepreneur is the major catalyst to the process of economic growth, a central force in both micro and macro economics. Despite this reality, in formal theory, the entrepreneur's role has historically been conspicuously absent. The economic models call for no entrepreneurial initiative, so that theoretically, business people remain passive "automaton maximizers." In fact, contributors from the disciplines of psychology and sociology have made more significant advances - by analyzing social and cultural conditions for entrepreneurship - than have economic theorists. Though it is decided that the supply of entrepreneurship, the entrepreneur's strategies, attitudes to risk, and idea sources cannot be analyzed in a systematic manner, the encouragement of these entrepreneurial behaviors and activities can be theoretically advanced. Theory, then, should consider not how the entrepreneur bears risk or employs R&D, but how the marginal cost of risk-bearing can be reduced, and what economic conditions make R&D easiest and most effective. These theoretical questions clearly bear upon policymaking, since, it is argued, the key to stimulating economic growth is the establishment of policies encouraging entrepreneurship. (CJC)

Keywords: Research policies, Costs of risk, Cultural attitudes, Entrepreneurial environment, Business conditions, Economic theory, Public policies, Economic growth, Social factors

Suggested Citation

Baumol, William J., Entrepreneurship in Economic Theory (1968). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN: https://ssrn.com/abstract=1506344

William J. Baumol (Contact Author)

New York University - Stern School of Business, Berkley Center for Entrepreneurial Studies ( email )

New York, NY
United States
212-998-8943 (Phone)
212-995-3932 (Fax)

Leonard N. Stern School of Business - Department of Economics

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