Entrepreneurial Economics

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If entrepreneurship remains as important to the economy as ever, then the continuing failure of mainstream economics to adequately account for entrepreneurship indicates that fundamental principles require re-evaluation. Entrepreneurial Economics is the study of the entrepreneur and entrepreneurship within the economy. The characteristics of entrepreneurial economy (regional or national level) are high level of innovation combined with high level of entrepreneurship which result in the creation of new ventures as well as new sectors and industries.

Mainstream economics does not include entrepreneurship not because there is no theory or analytical framework for entrepreneurship. Entrepreneurship does not belong in mainstream theory; in fact mainstream theory makes the entrepreneur an invisible man. The reason for that is that the construct of equilibrium models, which is central to mainstream economics, is exactly what by definition excludes entrepreneurship. Joseph Schumpeter and Israel Kirzner have argued in their writings, that entrepreneur does not tolerate equilibrium. According to Baumol, mainstream theory is not ‘wrong’ by excluding entrepreneurship it is irrelevant there.

Entrepreneurship has been perceived as a chaotic, unpredictable economic process, which cannot be modeled using the equilibrium based analytical methods used in mainstream economic theory. It seems no longer possible to expect that only theoretical refinements and extending known principles can provide for a theory of entrepreneurship. Challenging 'fundamental principles' like equilibrium models, rational agent, maximization paradigm, the traditional production function, by applying insight from other disciplines like theoretical physics (thermodynamics, entropy) might be the way forward in the study of entrepreneurial economics. Coase surveys the field of economics and believes it has become a "theory-driven" subject that has moved into a paradigm in which conclusions take precedence over problems. "If you look at a page of a scientific journal like Nature," he said, "every few weeks you have statements such as, 'We’ll have to think it out again. These results aren’t going the way we thought they would.' Well, in economics, the results always go the way we thought they would because we approach the problems in the same way, only asking certain questions. Entrepreneurial Economics challenges fundamental principles, using insights from models and theories in the natural sciences.

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[edit] References

  • Chen J. (2005). The Physical Foundation of Economics – An Analytical Thermodynamic Theory. World Scientific.
  • Farmer J.D., Shubik M., Smits E. (2005). Economics: The Next Physical Science?
  • Glancey, Keith D. , Mcquaid, Ronald W (2000) Entrepreneurial Economics.

Palgrave Macmillan.

  • Tabarok A. (2002). Entrepreneurial Economics – Bright Ideas from The Dismal Science. Oxford University Press.
  • Vinig G.T., Van Der Voort R. (2005). The Emergence of Entrepreneurial Economics. Elsevier.
  • Vogel J.H. (1989). Entrepreneurship, Evolution and the Entropy Law. The Journal of Behavioral Economics. Vol. 18, No. 3.
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