Abstract
Fiscal and monetary institutions are conspicuously omitted in the conventional theory of long-run economic growth. Moving from the Schumpeterian entrepreneur, who adopts new technology because its value, according to Tobin’s q, dominates the economic rents of existing capital, we argue that the Schumpeterian entrepreneur’s incentives to innovate change when he is transplanted into the public economy. We analyze two alternative institutional settings denoted as “long chain” and “short chain”. Through the “long chain” model we show that the Schumpeterian entrepreneur is driven towards “destructive creation” of new capital, thus becoming a political dis-entrepreneur, while the quasi-contractual “short chain” model provides incentives to innovate.
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The authors are deeply grateful to two anonymous referees for providing insightful comments that have brought greater clarity to the argument. They also thank the Editor in Chief of the journal for patiently reviewing the manuscript. Without his suggestions this paper would not have reached its present form.
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Eusepi, G., Wilson, E.J. How to make a dis-entrepreneur of the Schumpeterian entrepreneur: the impact of institutional settings on growth. Public Choice 136, 39–54 (2008). https://doi.org/10.1007/s11127-008-9277-y
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DOI: https://doi.org/10.1007/s11127-008-9277-y