Journal of Evolutionary Economics

, Volume 20, Issue 4, pp 629–643 | Cite as

Entrepreneurship and second-best institutions: going beyond Baumol’s typology

  • Robin Douhan
  • Magnus Henrekson
Regular Article


This paper reconsiders the predominant typology pioneered by Baumol (J Polit Econ 98(5):893–921, 1990) among productive, unproductive and destructive entrepreneurship. It is shown that the foundation of Baumol’s classification scheme is the restrictive concept of first-best outcomes, and therefore it easily fails to appreciate the true impact of entrepreneurship in real-world circumstances characterized by suboptimal institutions. We present an alternative way of generalizing the notion of entrepreneurship and show how and why it encompasses the Baumol typology as a special case. Our main distinction is between business and institutional entrepreneurship. We draw on Schumpeter and introduce the entrepreneur in an additional function: as a potential disturber of an institutional equilibrium. Various subsets of institutional entrepreneurship are posited and discussed. It is shown that changing the workings of institutions constitutes an important set of entrepreneurial profit opportunities. An implication of this is that entrepreneurial efforts to reform or offset inefficient institutions can, in many cases, be welfare-improving.


Entrepreneurship Innovation Institutions 

JEL Classifications

L5 M13 O31 O17 



Robin Douhan sadly passed away on August 10, 2009. His friendship, kindness and talent will be deeply missed. Financial support from the Gustaf Douglas Research Program on Entrepreneurship at IFN and from the Jan Wallander and Tom Hedelius Research Foundation is gratefully acknowledged. We thank Selva Baziki, Aron Berg, Niclas Berggren, Dan Johansson, Henrik Jordahl, Erik Lindqvist and Tino Sanandaji for useful comments and suggestions on earlier versions of this paper.


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Copyright information

© Springer-Verlag 2010

Authors and Affiliations

  1. 1.Research Institute of Industrial Economics (IFN)StockholmSweden
  2. 2.Department of EconomicsUppsala UniversityUppsalaSweden

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