Entrepreneurial Behavior and Perspective

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Name: Junie D. BonifacioDate: December 1, 2012
Topic Title: Entrepreneurial Behavior and Perspective
Material Title:Defining and Measuring Entrepreneurship

Summary

The reading focuses on the definition of entrepreneurship in different contexts and on measuring the level of entrepreneurial activity. Entrepreneurship has been defined differently through neo-classical and economic literatures. Theoretical definitions of entrepreneurship reflect a diverse set of ideas about the role of entrepreneurship in the economy, involving aspects such as innovation, uncertainty-bearing, opportunity-seeking, and management. Entrepreneurship is often used without a precise definition and it may not always be completely clear what the different measures actually measure for entrepreneurship. In the economic literature, Cantillon defines the entrepreneur as responsible for all exchange and circulation in the economy. He explains that the entrepreneur earns an uncertain profit from the difference between a known buying price and an uncertain selling price, and that the entrepreneur equilibrates supply and demand in the economy, bearing risk and uncertainty. Jean-Baptiste Say defines the entrepreneur as the main agent of production in the economy and should have a principal quality of having good judgment assessing the most favorable economic opportunities. Say further differentiates an entrepreneur from a capitalist, explaining that the pay-off to the entrepreneur is not profits arising from risk-bearing but instead a wage accruing to a scarce type of labor. Alfred Marshall introduced an innovating function of the entrepreneur which is to seek opportunities to minimize costs. Joseph Schumpeter opposed the risk bearer and manager definition of an entrepreneur. He argues that an entrepreneur is an innovator with five main tasks: creates new goods, creates a new method of production, opens a new market, captures a new source of supply, and creates a new organization or industry. Frank Knight theorizes that the main function of the entrepreneur is to assume the uncertainty related to risk and uncertainty, exercising judgment over these unique situations. The main difference between Knight’s and Schumpeter’s view on entrepreneurial activity is their view on uncertainty. Knight argues that the key role of the entrepreneur is to assume uncertainty and shield the stakeholders while Schumpeter leave’s the uncertainty bearing to the banker or the capitalist. Kirzner and Schultz argue that entrepreneurs deal with situations where the economy is in disequilibrium. The theories of Kirzner, Schults and Schumpeter recognize that the entrepreneur identifies or discovers business opportunities.

There are different aspects that serve as measure of entrepreneurial activity. Use of special measures may enable us to identify important dimensions of entrepreneurship and then compare the level of entrepreneurial activity across areas in one dimension at a time. These include the self-employment rate which is the most highly available measure in most countries, the business ownership rate, the entry and exit rates, GEM and the Total Entrepreneurial Activity Index, innovativeness through number of patents, the number of potential entrepreneurs, and performance measures such as the ratio of gazelles, the survival rate of firms, and the relative share of economic activity (GDP or employment) accounted for by small firms.

There is no general measure of entrepreneurship and specialized measures need to be considered to have focus on different dimensions of entrepreneurship. Obviously, entrepreneurship is thus difficult to measure.

Reaction

I agree and believe based on the reading that entrepreneurship can be viewed at different dimensions. Both the definition of entrepreneurship and measure of entrepreneurial activity can be viewed at different angles. The entrepreneur is an individual who can drive the direction of the economy, creating new...
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