William Baumol has argued for a long time that economic theory must once again account for the entrepreneur. Here is his latest attempt to reintroduce invention and entrepreneurship into production and distribution theory. But Baumol's effort have tended to be attempts to fit a square peg into a round hole. The logic of neoclassical equilibrium theory pushes out of analysis the prime movers of change. In a world of pre-reconciliation of plans, those whose business it is to reconcile plans will be excluded by the construction of the model.
This current paper by Baumol is very telling in that he explicitly states his sympathy to both Schumpeter and Kirzner and tries to get inside the "black box" of innovation and arbitrage. "I conclude," Baumol writes, "that neoclassical theory is not wrong in excluding the entrepreneur because it is dealing with subjects for which he is irrelevant. It would, in my view, be as indefensible to require all microeconomic writing to give pride and place to the entrepreneur as to exclude him universally. But that does not mean that no theory of entrepreneurship is needed. Universal exclusion condems us to leave out of discussions what I consider to be the most critical issues that should be examined (though not exclusively) in microeconomic terms: the determinants of innovation and growth and the means by which they can be preserved and stimulated."
My colleague Frederic Sautet has written a wonderful Policy Primer on the role of institutions in entrepreneurship which directly addresses Baumol's question.
Nice work from Frederick, is anyone reading David McClelland these days? He a lot of cross cultural work on entrepreneurship and economic development, reported in "Achieving Society".
http://www.amazon.com/gp/reader/0029205107/ref=sib_dp_bod_toc/103-0787350-4834264?%5Fencoding=UTF8&p=S00E#reader-link
Posted by: Rafe | January 10, 2006 at 07:06 PM