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The Economics of Entrepreneurship


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Entrepreneurship is among today's fastest growing fields in management, economics, and law. It is also quickly becoming a favorite topic in schools and universities. However, it is still widely debated as to how best to conceptualize and integrate the entrepreneurial model into economic theory and policy. The debate centers on whether entrepreneurship should be treated as a distinct field separate from economic policy, or if it should be identified along with law and business management? Two camps argue for and against the incorporation of entrepreneurship theory into economic models and policy.

Entrepreneurship

 

The traditional view is that the model of entrepreneurship consists of individual entrepreneurs acting on their own to develop and profit from markets. They assume that entrepreneurs are rational actors whose only motivation is profit. Entrepreneurs may be corporations or small businesses, and they may work for or alongside governmental authorities such as governments, banks, and other privatized organizations. As with all economic theories, however, this picture has many flaws. As detailed below, we detail some of the flaws in this traditional picture of entrepreneurship.

 

First, the traditional view of entrepreneurship assumes that entrepreneurs form part of a group rather than acting alone. For centuries, the term entrepreneur was often used to describe an individual who operated a business. By association, the entrepreneur was understood to be part of a set of professionals with common goals. This understanding of what makes a businessman different from, for example, a manufacturer, remained relatively intact until the twentieth century. Still, because many economists argue that the spread of innovations through the economy is inefficient, the idea of entrepreneurship is still sensitive to the problem of isolated innovation.

 

Second, in most modern economic theory, the entrepreneur needs some kind of external mechanism to support his or her actions. Externalities are costs that are not associated with the creation of value in the process of production. Economists call these exogenous effects and they can affect entrepreneurs in a variety of ways.

 

Third, most people do not view entrepreneurship in purely monetary terms. Many entrepreneurs believe that their actions are guided by notions of social equity or justice. In addition to providing goods and services, the sharing of innovation also provides access to resources and technological knowledge that other firms may lack.

 

Economists have not always seen entrepreneurship in the conventional economic sense. Today, most economic thinkers still view the world of business as being largely about supply and demand, with little concern for markets themselves. If anything, the lack of attention to markets by mainstream economics has led to many problems, such as the global economic crisis of the past two decades. The current effort to standardize economic thinking may help prevent future recessions from occurring and help entrepreneurial minds stay viable and productive. Fortunately, many economists today agree that the pursuit of entrepreneurship is highly important to overall economic growth.

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