Abstract
Entrepreneurship has been characterised as one of the most intriguing but equally elusive concepts in economics. This critical review first surveys its major intellectual roots and then proposes a modular concept of entrepreneurship that preserves essential distinctions along its behavioural, functional, and occupational dimensions. It argues that the behavioural definition identifies the only attribute that is both comprehensive and unique to the nature of entrepreneurship, while the functional and occupational definitions add the specificity required for many analytical purposes. To validate the concept, the paper discusses the appropriate empirical units of observation and maps a general policy framework.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
“So deep is their love of corn that on receiving reports that it is abundant anywhere, merchants will voyage in quest of it: they will cross the Aegean, the Euxine, the Sicilian sea; and when they have got as much as possible, they carry it over the sea, and they actually stow it in the very ship in which they sail themselves. And when they want money, they don't throw the corn away anywhere at haphazard, but they carry it to the place where they hear that corn is most valued and the people prize it the most highly, and deliver it to them there” (Oeconomicus, xx.27–28; quotation from Karayiannis, 2003, p. 558).
Streissler (1989) particularly points at the influence of Wilhelm Roscher and Karl Heinrich Rau.
By virtue of the outstanding comprehensiveness of his work, Marshall escapes any easy categorization. As Schumpeter (1954, p. 840) observed, “more than any other economist… Marshall pointed beyond himself” and “sensed the intimate organic necessities of economic life” (Schumpeter 1954 p. 836). For example, in his chapter on Business Management he briefly mentions also the tasks of processing information, innovation, and bearing risks—all of them important aspects we will turn to in the subsequent sections of this review. For a detailed discussion see Karayiannis (2009).
Karayiannis (2005) points in particular at F. Hawley and J. Haynes.
Fundamental uncertainty means the “typical uninsurable (because unmeasurable and this because unclassifiable) business risk that relates to the exercise of judgement in the making of decisions by the business man.” Among others, people differ in their “intellectual capacity to decide what should be done” as well as their “confidence in their judgement and powers and in disposition to act on their opinions” (Knight, 1921, p. 60–63).
See also business historian Richard S. Tedlow (2001, p. 87f): “Entrepreneurs are usually thought of as risk takers. They are said to take big risks for big rewards. In fact, most entrepreneurs embrace the rewards but try to avoid the risks….Thus, the voyage of many a great entrepreneur is, among other things, the voyage away from risk, which can never be completely eliminated from a new venture, and toward certainty.”
See also Ekelund and Hébert (1991), who report that in the nineteenth century the French economist Jules Dupuit was the first to recognise the entrepreneurial role of “discovering demand.”
Streissler (1994) provides a detailed account of the varied influences from both the Austrian and the German Schools on Schumpeter, among others pointing at Gottlieb Hufeland, who stressed the importance of entrepreneurs (in 1807); Karl Heinrich Rau, who emphasised the distinctive need for combining factors of production (in 1926); and A.F. Riedel, who elaborated on the task of innovation (in 1838). Balabkins (2003) points in particular at Albert E.F. Schäffle, who temporarily lived in Vienna and discussed innovation in the context of the protection of property rights (in 1867). Finally, Karayiannis (2005) mentions the influence of the US American J.B. Clark, who emphasised profits from cost-reducing innovations (in 1891).
Beneath the level of pecuniary rewards, Schumpeter also gave three psychological explanations of what motivates entrepreneurial initiative: (1) power (or ‘the will to found a private kingdom’), (2) ambition (or ‘the impulse to fight, to prove oneself superior to others’), and finally (3) ‘the joy of creating, of getting things done, or simply of exercising one’s energy and ingenuity’.
See also Grebel (2007).
Note the following remark, where Marshall (1890/1920, p. 295) already linked entrepreneurship, innovation, and economic development: “The tendency to variation is a chief cause of progress; and the abler are the undertakers in any trade the greater will this tendency be.” He also came very close to Schumpeter’s distinction between ‘creative’ and ‘adaptive’ behaviour, when writing that “we may divide employers and other undertakers into two classes, those who open out new and improved methods of business, and those who follow beaten tracks” (Marshall 1890/1920, p. 496).
The concept of economic rent originates in the idea of land rent, where it points to returns from a source of income, which cannot be expanded but is available in (approximately) fixed quantities. In its modern use, rent seeking means the acquisition of profits, for instance by the mere shift of monopoly rights, without creating additional value.
“Today, unproductive entrepreneurship takes many forms. Rent seeking, often via activities such as litigation and takeovers, and tax evasion and avoidance efforts seem now to constitute the prime threat to productive entrepreneurship….Corporate executives devote much of their time and energy to legal suit and countersuit, and litigation is used to blunt or prevent excessive vigor in competition by rivals’ (Baumol 1990, p. 915). Similarly, Baumol (2008) also relates the series of scandals and instances of excessive speculation on the financial markets to unproductive and occasionally illegal rent-shifting activities that divert some of the brightest and most entrepreneurial minds from creating ‘real value’.
Please note, that there is no a priori reason why this definition could not be opened to include non-market entrepreneurs, who use business techniques to address social goals (e.g., Shockley et al., 2008). However, by going beyond the pecuniary profit motive, it should be clear that one needs to provide a careful explanation of the particular goals, incentives and origins of such initiative.
References
Acs, Z.J., and Audretsch, B., Handbook of Entrepreneurship Research. Kluwer: Boston, 2003.
Ahmad, N. and Seymour, R.G., Defining Entrepreneurial Activity. Definitions Supporting Frameworks for Data Collection, OECD Statistics Working Papers 2008/01, OECD: Paris, 2008.
Ahmad, N., Hoffmann, A.N., A Framework for Addressing and Measuring Entrepreneurship, OECD Statistics Working Papers 2008/02, OECD; Paris, 2008.
Astebro, T., Thompson, P., “Entrepreneurs: Jacks of all Trades or Hobos? mimeo (electronic copy available at: http://ssrn.com/abstract=925221),” 2009.
Audretsch, D.B., Innovation and Industry Evolution. MIT Press: Cambridge MA, 1995.
Audretsch, D.B., Grilo, I., Thurik, A.R. (eds.), Handbook of Research on Entrepreneurship Policy. Cheltenham (Edward Elgar), 2007.
Autio, E., Hölzl, W., Addressing Challenges for High-growth Companies: Summary and Conclusions of the Europe Innova Gazelles Innovation Panel, Europe INNOVA Paper No. 6, Office for Official Publications of the European Communities, Luxembourg, 2008.
Balabkins, N.W., “Adaptation without attribution? The genesis of schumpeter’s innovator,” in Backhaus, J. (ed.), Joseph Alois Schumpeter. Entrepreneurship, Style and Vision. Boston (Kluwer), pp. 203–220, 2003.
Baumol, W.J., “Small enterprises, large firms, productivity growth and wages,” Journal of Policy Modeling, vol. 30, no. 4pp. 575–589, 2008.
Baumol, W.J., The Free-Market Innovation Machine. Analyzing the Growth Miracle of Capitalism, Princeton University Press: Princeton, 2002.
Baumol, W.J., Entrepreneurship, Management, and the Structure of Payoffs. MIT Press: Cambridge MA, 1993.
Baumol, W.J., “Entrepreneurship, productive, unproductive and destructive,” Journal of Political Economy, vol. 98, pp. 893–921, 1990.
Baumol, W.J., “Entrepreneurship in economic theory,” American Economic Review, vol. 58, pp. 64–71, 1968.
Baumol, W.J., Litan, R.E., and Schramm, C.J., “Sustaining entrepreneurial capitalism,” Capitalist Society, vol. 2, no. 2pp. 1–36, 2007.
Beck, T., Demirgüc-Kunt, A., and Maksimovic, V., “Financing patterns around the world: Are small firms different?,” Journal of Financial Economics, vol. 89, pp. 467–487, 2008.
Bonturi, M., Entrepreneurs as Drivers of Innovation and Growth, (Note by ICE), OECD: Paris, 2008.
Burgelman, R.A., “Corporate entrepreneurship and strategic management: Insights from a process study,” Management Science, vol. 29, pp. 1349–1364, 1983a.
Burgelman, R.A., “A model of interaction of strategic behavior, corporate context, and the concept of strategy,” Academy of Management Review, vol. 8, pp. 61–70, 1983b.
Burgelman, R.A., Grove, A.S., Let Chaos Reign, Then Rein In Chaos—Repeatedly: Managing Strategic Dynamics for Corporate Longevity. Stanford Research Paper No. 1954, 2007.
Casson, M., The Entrepreneur. An Economic Theory. Gregg Revivals: Aldershot, UK, 1982.
Casson, M., Yeung, B., Basu, A., Wadeson, W. (eds.), The Oxford Handbook of Entrepreneurship. Oxford (Oxford University Press), 2006.
Davidsson, P., “The domain of entrepreneurship research: some suggestions,” in Katz, J. and Shepherd, S. (eds.), Advances in Entrepreneurship, Firm Emergence and Growth vol. 6. Amsterdam (Elsevier), pp. 315–372, 2003.
Ekelund, R.B. and Hébert, R.F., “Dupuit’s characteristics-based theory of consumer behavior and entrepreneurship,” Kyklos, vol. 44, pp. 19–34, 1991.
Endres, A.M. and Woods, C.R., “Modern theories of entrepreneurial behaviour: A comparison and appraisal,” Small Business Economics, vol. 26, pp. 189–202, 2006.
Evans, D.S. and Jovanovic, B., “An estimated model of entrepreneurial choice and liquidity constraints,” Journal of Political Economy, vol. 97, pp. 808–827, 1989.
Grebel, T., “Neo-Schumpeterian perspectives in entrepreneurship research,” in Hanusch, H. and Pyka, A. (eds.), Elgar Companion to Neo-Schumpeterian Economics. Cheltenham, UK (Edward Elgar), 2007.
Grebel, T., Pyka, A., and Hanusch, H., “An Evolutionary approach to the theory of entrepreneurship,” in Hölzl, W. and Foster, J. (eds.), Applied Evolutionary Economics and Complex Systems. Cheltenham (Edward Elgar), pp. 155–180, 2004.
Grilo, I. and Irigoyen, J.M., “Entrepreneurship in the EU: To wish and not to be,” Small Business Economics, vol. 26, no. 4pp. 305–318, 2006.
Grilo, I. and Thurik, A.R., “Latent and actual entrepreneurship in Europe and the US: Some recent developments,” International Entrepreneurship and Management Journal, vol. 1, pp. 441–459, 2005.
Hartog, J., Ferffer-i-Carbonell, A., and Jonker, N., “Linking measured risk aversion to individual characteristics,” Kyklos, vol. 55, pp. 3–26, 2002.
Hayek, F.A., New Studies in Philosophy, Politics, Economics and the History of Ideas. Routledge: London, 1978.
Hayek, F.A., “The use of knowledge in society,” American Economic Review, vol. 35, pp. 519–530, 1945.
Hébert, R.F. and Link, A.N., “In search of the meaning of entrepreneurship,” Small Business Economics, vol. 1, pp. 39–49, 1989.
Hébert, R.F., Link, A.N., The Entrepreneur. Mainstream Views and Radical Critiques. Praeger: New York, 1982.
Henrekson, M., Johansson, D., Gazelles as Job Creators—A Survey and Interpretation of the Evidence, IFN Working Paper No. 733, 2008.
Hoffmann, A.N., “A rough guide to entrepreneursip policy,” in Audretsch, D., Grilo, I., and Thurik, A. (eds.), Handbook of Research on Entrepreneurship Policy. Cheltenham (Edward Elgar), pp. 140–171, 2007.
Holmes, T.J. and Schmitz, J.A., “A theory of entrepreneurship and its application to the study of business transfers,” J Polit Econ, vol. 98, pp. 265–294, 1990.
Hölzl, W., Is the R&D behaviour of fast growing SMEs different? Evidence from CIS data for 16 countries, Small Business Economics, 2009 (in press).
Hölzl, W. (coord.), Peneder, M., Silva-Porto, M., van der Horst, R., Telussa, J., The Economics of Entrepreneurial Activity and SMEs: Policy Implications for the EU, Background report prepared for the European Competitiveness Report 2008, 2008.
Kaniovski, S. and Peneder, M., “Determinants of firm survival: A duration analysis using the generalized gamma distribution,” Empirica, vol. 35, no. 1pp. 41–58, 2008.
Karayiannis, A.D., “The Marshallian Entrepreneur,” History of Economic Ideas, 2009 (in press).
Karayiannis, A.D., “The american apogee of contributions on entrepreneurship (1880s–1920s),” American Review of Political Economy, vol. 3, no. 2pp. 72–96, 2005.
Karayiannis, A.D., “Entrepreneurial functions and characteristics in a proto-capitalist economy the xenophonian entrepreneur,” Wirtschaftspolitische Blatter, vol. 50, pp. 553–563, 2003.
Kihlstrom, R.E. and Laffont, J.J., “A general equilibrium entrepreneurial theory of firm formation based on risk aversion,” Journal of Political Economy, vol. 87, pp. 719–748, 1979.
Kirzner, I.M., “Entrepreneurial discovery and the competitive market process: An Austrian approach,” Journal of Economic Literature, vol. 35, pp. 60–85, 1997a.
Kirzner, I.M., How Markets Work Disequilibrium, Entrepreneurship and Discovery, IEA: London, 1997b.
Knight, F., Risk, Uncertainty and Profit, New York: Houghton Mifflin Co. (quotation taken from reprint in Putterman Louis and Randall S Kroszner (1996) The Economic Nature of the Firm. Cambridge University Press, Cambridge, pp. 60–65, 1921.
Lazear, E.P., “Entrepreneurship,” Journal of Labor Economics, vol. 23, pp. 649–680, 2005.
Lazear, E.P., “Balanced skills and entrepreneurship,” American Economic Review, vol. 94, pp. 208–211, 2004.
Leibenstein, H., “Entrepreneurship and development,” American Economic Review, vol. 58, pp. 72–83, 1968.
Link, A.N., “Public policy and entrepreneurship,” in Audretsch, D., Grilo, I., and Thurik, A. (eds.), Handbook of Research on Entrepreneurship Policy. Cheltenham (Edward Elgar), pp. 130–139, 2007.
Lunati, M., High Growth SMEs, Innovation, Intellectual Assets and Value Creation, draft synthesis report of the Working Party on SMEs and Entrepreneurship (WPSMEE), OECD: Paris, 2008.
Mangoldt H. v., Die Lehre vom Unternehmergewinn, Teubner, Leipzig, 1855.
Marshall, A., Principles of Economics. 8th edn. MacMillan: London, 1890/1920.
Menger, C., Grundsätze der Volkswirtschaftslehre. 2nd edn. Hölder-Pichler-Tempsky: Vienna, 1871.
Mises, L., Human Action. A Treatise on Economics. William Hodge and Company: London, 1949.
Peneder, M., Entrepreneurship, Technological Regimes and Productivity Growth. Integrated Classifications of Firms and Sectors, EU KLEMS Working Paper No. 28, 2008a.
Peneder, M., “The problem of private under-investment in innovation: A policy mind-map,” Technovation, vol. 28, pp. 518–530, 2008b.
Peneder, M., The Impact of Venture Capital on Firm Growth and Innovation, paper presented at the 15th Global Finance Conference in Hangzhou, China, 18th–20th of May 2008, 2008c.
Plehn-Dujowich, J.M., “Entry and exit by new versus existing firms,” Int J Ind Organ, vol. 27, pp. 214–222, 2009.
Ricketts, M., “Theories of entrepreneurship: Historical development and critical assessment,” in Casson, M., Yeung, B., Basu, A., and Wadeson, W. (eds.), The Oxford Handbook of Entrepreneurship. Oxford (Oxford University Press), pp. 33–58, 2006.
Robbins, L., An Essay on the Nature and Significance of Economic Science, 2nd edition. Macmillan: London, 1932/1935.
Sahlman, W.A., Stevenson, H.H., Roberts, M.J., and Bhidé, A., The Entrepreneurial Venture, 2nd ed.. Cambridge MA (Harvard Business School Press), 1999.
Santarelli, E. and Vivarelli, M., “Entrepreneurship and the process of firms’ entry, survival and growth,” Industrial and Corporate Change, vol. 16, no. 3pp. 455–488, 2007.
Schmitz, J.A., “Imitation, entrepreneurship and long-run growth,” Journal of Political Economy, vol. 97, pp. 721–739, 1989.
Schumpeter, J.A., History of Economic Analysis, Oxford University Press: Oxford, 1954.
Schumpeter, J.A., Business Cycles. A Theoretical, Historical, and Statistical Analysis of the Capitalist Process, Vol. 2, McGraw Hill: New York, 1939.
Schumpeter, J.A., “Unternehmer in handwörterbuch der staatswissenschaften,” Gustav Fischer: Jena, 4th edn., vol. 8, pp. 476–486. 1928.
Schumpeter, J.A., Theorie der wirtschaftlichen Entwicklung, 4th edn., Duncker & Humblot: Berlin, 1911.
Schultz, T.W., “The value of the ability to deal with disequilibria”,” J Econ Lit, vol. 13, pp. 827–846, 1975.
Shane, S., “A General Theory of Entrepreneurship. The Individual-Opportunity Nexus,” Edward Elgar: Cheltenham (UK), 2004.
Shane, S., Eckhardt, J., “The individual-opportunity nexus,” in Acs, Z.J., and Audretsch, D.B. (eds), Handbook of Entrepreneurship Research. An Interdisciplinary Survey and Introduction. Kluwer, Boston (Mass), pp. 161–194, 2003.
Shane, S. and Venkataraman, S., “The promise of entrepreneurship as a field of research,” Academy of Management Review, vol. 25, pp. 217–226, 2000.
Shockley, G.E., Frank, P.M., Stough, R.R. (eds.), Non-market Entrepreneurship. Interdisciplinary Approaches, Cheltenham, UK (Edward Elgar).
Silva, O., The jack of all trades entrepreneur innate talent or acquired skill” Economics Letters, vol. 97, no. (2), pp. 118–123, 2007.
Stevenson, L. and Lundström, A., “Dressing the emperor: the fabric of entrepreneurship policy,” in Audretsch, D., Grilo, I., and Thurik, A. (eds.), Handbook of Research on Entrepreneurship Policy. Cheltenham (Edward Elgar), pp. 94–129, 2007.
Streissler, E.W., “The influence of German and Austrian economics on Joseph A. Schumpeter,” in Shionoya, Y. and Perlman, M. (eds.), Schumpeter in the History of Ideas. Ann Arbor (University of Michigan Press), 1994.
Streissler, E.W., “Der Unternehmer in der deutschen Nationalökonomie des 19. Jahrhunderts,” in Gahlen, B., Meyer, B., and Schumann, J. (eds.), Wirtschaftswachstum, Strukturwandel und dynamischer Wettbewerb. Berlin (Springer), pp. 17–33, 1989.
Streissler, E.W., “The intellectual and political impact of the Austrian school of economics,” History of European Ideas, vol. 9, pp. 191–204, 1988.
Tedlow, R.S., Giants of Enterprise. Seven Business Innovators and the Empires They Built. HarperCollins: New York, 2001.
Van Praag, M.C., Some classic views on entrepreneurship” De Economist, vol. 147, no. (3), pp. 311–335. 1999.
Van Praag, M.C. and Van Ophem, H., “Determinants of willingness and opportunity to start as an entrepreneur,” Kyklos, vol. 48, pp. 513–540, 1995.
Venkataraman, S., “The Distinctive Domain of Entrepreneurship Research,” in Katz, J.A. (ed.), Advances in Entrepreneurship, Firm Emergence and Growth vol. 3. Greenwich, Connecticut (JAI), pp. 119–138, 1997.
Verheul, I., Wennekers, S., Audretsch, D.B., Thurik, R., An Eclectic Theory of Entrepreneurship, Tinbergen Institute Discussion Paper TI2001-030/3, 2001.
Wagner, J., “Testing Lazear’s jack-of-all-trades view of entrepreneurship with German microdata,” Applied Economic Letters, vol. 10, pp. 687–89, 2003.
Wennekers, S. and Thurik, R.A., “Linking entrepreneurship and economic growth,” Small Business Economics, vol. 13, pp. 27–55, 1999.
Witt, U., “Do entrepreneurs need firms? A contribution to a missing chapter in Austrian economics,” Review of Austrian Economics, vol. 11, pp. 99–109, 1999.
Witt, U., “Imagination and leadership—The neglected dimension of an evolutionary theory of the firm,” Journal of Economic Behavior & Organization, vol. 35, pp. 161–177, 1998.
Acknowledgements
This work has benefitted from a number of critical and very constructive comments. In particular, I want to thank Robert Burgelman, Werner Hölzl, Anastassios Karayiannis, and Edward Lazear for sharing their knowledge, posing probing questions or otherwise helping to clarify some of the more intricate aspects of entrepreneurship.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Peneder, M. The Meaning of Entrepreneurship: A Modular Concept. J Ind Compet Trade 9, 77–99 (2009). https://doi.org/10.1007/s10842-009-0052-7
Received:
Revised:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10842-009-0052-7