Entrepreneurial Economics - Schumpeter

Schumpeter

Schumpeter’s concept is a synthesis of three different notions of entrepreneur: risk bearer, innovator and a coordinator cum manager. He assigned the role of innovator to the entrepreneur and not to the capitalist. Capitalists supply capital while entrepreneurs innovate. He stated that ’whatever the type, everyone is entrepreneur only when he actually carries out a new combination and loses that character as soon as he has built up his business, when he settles to running it as other people run their business’. The focus here is not on a category of person, but on a function. He was perhaps influenced by his family history.

The entrepreneur has been perceived as someone who disrupts an existing equilibrium. Innovation is a chaotic, unpredictable economic process, which cannot be modeled using the equilibrium based analytical methods used in mainstream economic theory. Challenging 'fundamental principles' like equilibrium models, rational agent, maximization paradigm, the traditional production function, by applying insight from other disciplines like theoretical physics (thermodynamics, entropy) might be the way forward in the study of entrepreneurial economics. Two types of theories attempt to explain entrepreneurs. One is a sociological approach, which suggests that as a result of withdrawal of status, some social classes will work to fill the void and be more entrepreneurial. The other is an economic approach which implies entrepreneurs identify and fill market gaps.

Following Schumpeter (entrepreneur as an innovator), Leibenstein postulates that the entrepreneurs are gap-fillers i.e. they have the ability to perceive market opportunities and to develop new goods/services that are not currently being supplied. He postulates that entrepreneurs have the special ability to connect markets and make up for market deficiencies. Additionally, drawing from the theories of J.B. Say and Cantillon, Leibenstein suggests that entrepreneurs have the ability to combine various inputs into new innovations in order to satisfy unfulfilled market demand.