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Entrepreneurship in the Theory of the Firm

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Abstract

This paper develops micro-economic foundations for a theory of entrepreneurship and growth, focusing on innovation and opportunity as intermediate linkages between the two. Expanding upon points of tangency between Schumpeter and Coase, the paper argues that transactions costs are the glue that holds together entrepreneurial “new combinations.” Technological/organizational complexity of production is defined as the extent to which a technical decision by one unit within the firm affects the productive efficiency of other units. Where decreasing transactions costs tend to pull incumbent organizations apart, the possession of difficult to imitate production practices by the same organizations keeps them together. The dissolution of incumbent firms creates opportunities for entrepreneurs; the prospect of Schumpeterian rents provides the incentive to realize those opportunities.

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Acknowledgements

I thank Karl Shell, Stuart Kauffman, and José Lobo for their contributions to this paper via prior joint work. Zoltan Acs provided invaluable guidance in thinking through the argument as presented. Appendices A and B are drawn from Auerswald et al. (2000). All errors are my own.

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  1. School of Public Policy, George Mason University, Fairfax, VA, 22030-4444, USA

    Philip E. Auerswald

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Correspondence to Philip E. Auerswald.

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Auerswald, P.E. Entrepreneurship in the Theory of the Firm. Small Bus Econ 30, 111–126 (2008). https://doi.org/10.1007/s11187-006-9023-0

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