The Substance of Entrepreneurship and the Entrepreneurship of Substances

Abstract

Abstract: James Buchanan argues that profit seeking and rent seeking are formally the same sort of behavior, but that the substance of such activities — whether they create or destroy wealth — depends on the institutional environment within which they take place. William Baumol and Israel Kirzner each flesh out this distinction between form and substance in more detail but in different ways. Baumol distinguishes between productive, unproductive, and destructive forms of entrepreneurship, while Kirzner distinguishes between ordinary types of entrepreneurial discovery and superfluous discoveries. In this essay we argue that Baumol and Kirzner’s contributions are complementary, providing a more complete taxonomy of the substance of entrepreneurial activity. We also integrate these ideas with recent work on institutional entrepreneurship that examines changes in the rules governing economic activity. We illustrate this taxonomy by examining entrepreneurial innovation in drug markets both legal and illegal, identifying cases of productive, superfluous, erroneous, unproductive, destructive, and protective entrepreneurship.

JEL Classification: L26, D02, P48