8/17/2019 2.Theories of Entrepreneurship
1/31
Theories of
Entrepreneurship1
8/17/2019 2.Theories of Entrepreneurship
2/31
Theories
1) RICHARD CANTILLON2) MARK CASSON’S ECONOMIC THEORY3) LEIBENSTIEN’S X-EFFICIENCY THEORY4) HARVARD SCHOOL THEORY
5) HAGEN’S THEORY OF SOCIAL CHANGE6) KIRZNER’S THEORY OF ADJUSTMENT OF PRICE7) KUNKEL’S THEORY OF ENTREPRENEURIAL
SUPPLY
8) JOSEPH SCHUMPETER’S INNOVATION THEORY9) DAVID McCLELLAND’S THEORY OF
MOTIVATION
2
8/17/2019 2.Theories of Entrepreneurship
3/31
Richard Cantillion
• Richard Cantillion (1755) – the firstperson to recognise the role of anentrepreneur in economic theory.
• “The farmer is an entrepreneur
who promises to pay the landowner for his farm or land, afixed sum of money withoutassurance for the profit he willderive from his enterprise”.
• Hence entrepreneur is always at risk ofbearing losses if he is unable to sell thegoods at a higher price.
3
8/17/2019 2.Theories of Entrepreneurship
4/31
Theories
1) RICHARD CANTILLON2) MARK CASSON’S ECONOMIC THEORY3) LEIBENSTIEN’S X-EFFICIENCY THEORY4) HARVARD SCHOOL THEORY
5) HAGEN’S THEORY OF SOCIAL CHANGE6) KIRZNER’S THEORY OF ADJUSTMENT OF PRICE7) KUNKEL’S THEORY OF ENTREPRENEURIAL
SUPPLY
8) JOSEPH SCHUMPETER’S INNOVATION THEORY9) DAVID McCLELLAND’S THEORY OF
MOTIVATION
4
8/17/2019 2.Theories of Entrepreneurship
5/31
An Economic Theory
•
Mark Casson is a professor of Economics• “The Entrepreneur – An Economic Theory”(1945)
• Demand for entrepreneurship stems from:
– Need to adjust to change
• Supply of entrepreneurship is limited by:
– Scarcity of the requisite personal qualities
– Difficulty of identifying them when they areavailable
• Four major qualities which are crucial forsuccessful entrepreneur are:
– Imagination (innate)
– judgemental
– Self confident
– persuasive
5
8/17/2019 2.Theories of Entrepreneurship
6/31
• Economic factors that encourage or
discourage entrepreneurship include: – Taxation policy
– Industrial policy
– Easy availability of raw materials
– Easy access to finance
– Access to information on markets
– Available technology and infrastructure
– Market opportunities
6
8/17/2019 2.Theories of Entrepreneurship
7/31
Theories
1) RICHARD CANTILLON2) MARK CASSON3) LEIBENSTIEN’S X-EFFICIENCY THEORY4) HARVARD SCHOOL THEORY
5) HAGEN’S THEORY OF SOCIAL CHANGE6) KIRZNER’S THEORY OF ADJUSTMENT OF PRICE7) KUNKEL’S THEORY OF ENTREPRENEURIAL
SUPPLY
8) JOSEPH SCHUMPETER’S INNOVATION THEORY9) DAVID McCLELLAND’S THEORY OF
MOTIVATION
7
8/17/2019 2.Theories of Entrepreneurship
8/31
LEIBENSTEIN’SX – EFFECIENCY THEORY
• Harvey Leibenstein (1922-1994)propounded the theory of X-efficiencywhich is popularly called Gap FillingTheory.
• According to Leibenstein,
entrepreneurial functions aredetermined by the X-efficiency whichmeans the degree of inefficiency on theuse of resources within the firm.
• He identifies two main roles for theentrepreneur: – Input completion (improve efficiency of
existing production methods orintroduce new ones)
– Gap filling (allocative efficiency)
8
8/17/2019 2.Theories of Entrepreneurship
9/31
Theories
1) RICHARD CANTILLON2) MARK CASSON3) LEIBENSTIEN’S X-EFFICIENCY THEORY4) HARVARD SCHOOL THEORY
5) HAGEN’S THEORY OF SOCIAL CHANGE6) KIRZNER’S THEORY OF ADJUSTMENT OF PRICE7) KUNKEL’S THEORY OF ENTREPRENEURIAL
SUPPLY
8) JOSEPH SCHUMPETER’S INNOVATION THEORY9) DAVID McCLELLAND’S THEORY OFMOTIVATION
9
8/17/2019 2.Theories of Entrepreneurship
10/31
HARVARD SCHOOL THEORY
• Harvard School Contemplated thatentrepreneurship involves any
deliberate activity that initiates,
maintains and grows a profit-oriented enterprise for production
or distribution of economic goods
or services, in interaction withinternal and external forces.
10
8/17/2019 2.Theories of Entrepreneurship
11/31
• Features of Harvard School Theory
• Internal Forces: These forces refer to the internal qualities of theindividual such as intelligence, skill, knowledge experience,
intuition, exposure, etc.• These forces influence the entrepreneurial activities of an
individual to a great extent.
• External Forces: These forces refer to the economic ,political, social,cultural and legal factors which influence origin and growth of
entrepreneurship in an economy.• Emphasis on two types of Entrepreneurial activities
1. Organization or coordination activity:
Entrepreneurial functions like organization and combination ofresources for creating viable enterprises
2. Sensitivity to environmental factors that affect decision making
The responsiveness to the environmental condition that influencesdecision making function
11
8/17/2019 2.Theories of Entrepreneurship
12/31
Theories
1) RICHARD CANTILLON2) MARK CASSON3) LEIBENSTIEN’S X-EFFICIENCY THEORY4) HARVARD SCHOOL THEORY
5) HAGEN’S THEORY OF SOCIAL CHANGE6) KIRZNER’S THEORY OF ADJUSTMENT OF PRICE7) KUNKEL’S THEORY OF ENTREPRENEURIAL
SUPPLY
8) JOSEPH SCHUMPETER’S INNOVATION THEORY9) DAVID McCLELLAND’S THEORY OF
MOTIVATION
12
8/17/2019 2.Theories of Entrepreneurship
13/31
HAGEN’S THEORY OFSOCIAL CHANGE
• Everett Hagen (1964)• “Theory of Social Change: How economic growth
begins”• Creative personality characterised by high
need of achievement, order and autonomy• Withdrawal of status triggers changes in
personality• Factors responsible for withdrawal of status:
–Displacement of a traditional elite group
– Changing distribution of economic power – Non-acceptance of expected status on migration
13
8/17/2019 2.Theories of Entrepreneurship
14/31
Theories
1) RICHARD CANTILLON2) MARK CASSON3) LEIBENSTIEN’S X-EFFICIENCY THEORY4) HARVARD SCHOOL THEORY
5) HAGEN’S THEORY OF SOCIAL CHANGE6) KIRZNER’S THEORY OF ADJUSTMENT OF
PRICE7) KUNKEL’S THEORY OF ENTREPRENEURIAL
SUPPLY8) JOSEPH SCHUMPETER’S INNOVATION THEORY9) DAVID McCLELLAND’S THEORY OF
MOTIVATION
14
8/17/2019 2.Theories of Entrepreneurship
15/31
THEORY OFADJUSTMENT OF PRICE
– KIRZNER (2006)• Adjustment of Price:• The chief role of entrepreneur is based upon the
adjustment of price in the market.• The buyer may pay higher price or seller may accept a
lower price, which gives rise to opportunities for profit.•
Further if different prices prevail in the same market,there in an opportunity for profitable arbitragebetween two segments.
• Alertness to disequilibrium as a distinguishingcharacteristic:
• Alertness to disequilibrium enables the entrepreneur tointervene in the market by changing the price.
• Other individuals simply respond by changing theirbuying and selling plans in lieu of the new price
• Thus, economy in purchase and profitable selling resultsin economic gain
15
8/17/2019 2.Theories of Entrepreneurship
16/31
Theories
1) RICHARD CANTILLON2) MARK CASSON3) LEIBENSTIEN’S X-EFFICIENCY THEORY4) HARVARD SCHOOL THEORY
5) HAGEN’S THEORY OF SOCIAL CHANGE6) KIRZNER’S THEORY OF ADJUSTMENT OF PRICE7) KUNKEL’S THEORY OF ENTREPRENEURIAL
SUPPLY
8) JOSEPH SCHUMPETER’S INNOVATION THEORY9) DAVID McCLELLAND’S THEORY OFMOTIVATION
16
8/17/2019 2.Theories of Entrepreneurship
17/31
THEORY OF ENTREPRENEURIALSUPPLY – KUNKEL
• BEHAVIOURIST MODEL – JOHN KUNKEL(1965)• According to him, psychological and
sociological variables are the main determinantsfor the emergence of entrepreneurs.• Individual activities are related to both past and
present and surrounding social structuresand physical conditions
• Determinants of individual activities are both: – Deliberate – Accidental
17
8/17/2019 2.Theories of Entrepreneurship
18/31
• According to him, Entrepreneurship can be
dependent upon the following structures inthe economy:
• Demand Structure
•
Limitation Structure (barriers)• Labour Structure
• Opportunity structure
• His model is based upon experimentalpsychology, identifying sociologicalvariables as the determinants ofentrepreneurial supply.
18
8/17/2019 2.Theories of Entrepreneurship
19/31
Theories
1) RICHARD CANTILLON2) MARK CASSON3) LEIBENSTIEN’S X-EFFICIENCY THEORY4) HARVARD SCHOOL THEORY
5) HAGEN’S THEORY OF SOCIAL CHANGE6) KIRZNER’S THEORY OF ADJUSTMENT OF PRICE7) KUNKEL’S THEORY OF ENTREPRENEURIAL
SUPPLY
8) JOSEPH SCHUMPETER’S INNOVATIONTHEORY9) DAVID McCLELLAND’S THEORY OF
MOTIVATION
19
8/17/2019 2.Theories of Entrepreneurship
20/31
Schumpeter’s
InnovationTheory
20
• Joseph Schumpeter (1949)• “Dynamic Entrepreneurship
Innovation Theory”• Entrepreneurship is a creative activity of
doing things that are generally not done inthe ordinary course of business
8/17/2019 2.Theories of Entrepreneurship
21/31
• Five Point Theory:- – Creates a new product/new quality of
product
– Introduces a new method of production
– Discovers a new market
– Finds a new source of raw material
–
Finds new way of making things/breaking up of monopoly
• Inventor and innovator - difference
• Entrepreneur – change agent
21
8/17/2019 2.Theories of Entrepreneurship
22/31
Criticisms:• The theory ignores organising skills
• Innovations are routine
• Large scale entrepreneur not possiblesince beginning
• Lack of Capital and skilled labour,imperfect markets results in SSIs
• Not applicable in LDCs
22
8/17/2019 2.Theories of Entrepreneurship
23/31
Theories
1) RICHARD CANTILLON2) MARK CASSON3) LEIBENSTIEN’S X-EFFICIENCY THEORY4) HARVARD SCHOOL THEORY
5) HAGEN’S THEORY OF SOCIAL CHANGE6) KIRZNER’S THEORY OF ADJUSTMENT OF PRICE7) KUNKEL’S THEORY OF ENTREPRENEURIAL
SUPPLY
8) JOSEPH SCHUMPETER’S INNOVATION THEORY9) DAVID McCLELLAND’S THEORY OFMOTIVATION
23
Th f Hi h
8/17/2019 2.Theories of Entrepreneurship
24/31
Theory of HighAchievement (1953)• “NEED FOR ACHIEVEMENT”
• Three types of motivational needs – Achievement Motivation (n-ach)
Seeks achievement attainment of
realistic but challenging goals
advancement in the job
– Authority/power Motivation (n-pow)need to be influential effective
and make an impact. Strong need
to lead and ideas to prevail
–
Affiliation Motivation (n-affil)need for friendly relationships
motivated interactions with other
people. TEAM PLAYERS
24
8/17/2019 2.Theories of Entrepreneurship
25/31
• Mix and combination of all these qualities• Need for achievement is the most important need
which can be used effectively for economic
progress.• This is developed in the family itself.• McClelland’s views on entrepreneurship:
– “Entrepreneurs are made, not born”
•
Through Entrepreneurship developmentprogrammes• Two characteristics:-
– Doing things in a new and better way
– Decision making under uncertainty
• Get a KICK out of winning or solving a difficultproblem than money
25
8/17/2019 2.Theories of Entrepreneurship
26/31
Key points:1) RICHARD CANTILLON
(Entrepreneur is the RISK BEARER and heis not the supplier of capital)
2) MARK CASSON (Entrepreneurship is a result of conducive
economic conditions. 4 qualities-imagination, judgemental,
confident, persuasive)
26
8/17/2019 2.Theories of Entrepreneurship
27/31
3) LEIBENSTIEN’S X-EFFICIENCYTHEORY
(X-efficiency is the degree of inefficiencyin the use of resources within the firm: itmeasures the extent to which the firm fails
to realise its productive potential)4) HARVARD SCHOOL THEORY
(Purposeful activity which initiates,
maintains and grows an enterprise ininteraction with internal and externalenvironment)
27
8/17/2019 2.Theories of Entrepreneurship
28/31
5) HAGEN’S THEORY OF SOCIALCHANGE
(An entrepreneur is a creative problem-solver interested in things in practicaland technological realm driven by dutyto achieve.
Withdrawal of status triggers changesin personality)
6) KIRZNER’S THEORY OFADJUSTMENT OF PRICE
(Entrepreneur is the ARBITRAGEURwho makes profit due to differences inthe prices prevailing in the market)
28
8/17/2019 2.Theories of Entrepreneurship
29/31
7) KUNKEL’S THEORY OFENTREPRENEURIAL SUPPLY
(Individuals exhibit Entrepreneurialbehavior on the basis of theirpsychological and sociological
environment)8) JOSEPH SCHUMPETER’S
INNOVATION THEORY
(Innovation is the only key to economicprogress)
29
8/17/2019 2.Theories of Entrepreneurship
30/31
9) DAVID McCLELLAND’S THEORY OFMOTIVATION
(Intense, prolonged and repeated effortsto accomplish something difficult)
30
8/17/2019 2.Theories of Entrepreneurship
31/31
31
Top Related