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Entrepreneurship and Second-best Institutions: Going Beyond Baumol’s Typology

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Author Info
Douhan, Robin (Research Institute of Industrial Economics (IFN))
Henrekson, Magnus () (Research Institute of Industrial Economics (IFN))

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Abstract

This paper reconsiders the predominant typology pioneered by Baumol (1990) between productive, unproductive and destructive entrepreneurship. Baumol’s classificatory scheme is built around a limited concept of first-best outcomes and therefore easily fails to appreciate the true impact of entrepreneurship in real world circumstances characterized by suboptimal institutions. We present an alternative way of generalizing the notion of entrepreneurship and show how and why it encompasses the Baumol typology as a special case. Our main distinction is between business and institutional entrepreneurship. We draw on Schumpeter’s notion of creative destruction and reintroduce the entrepreneur as a potential disturber of an institutional equilibrium. Various subsets of institutional entrepreneurship are posited and discussed. It is shown that changing the workings of institutions constitutes an important set of entrepreneurial profit opportunities. An implication of this is that entrepreneurial efforts to reform or offset inefficient institutions can in some cases be welfare-improving.

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Publisher Info
Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 766.

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Length: 20 pages
Date of creation: 23 Sep 2008
Date of revision: 27 Aug 2009
Handle: RePEc:hhs:iuiwop:0766

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Related research
Keywords: Entrepreneurship; Innovation; Institutions;

Other versions of this item:

Find related papers by JEL classification:
L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups
O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Douhan, Robin & Henrekson, Magnus, 2008. "Productive and Destructive Entrepreneurship in a Political Economy Framework," Working Paper Series 761, Research Institute of Industrial Economics. [Downloadable!]
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  4. Oliver E. Williamson, 2000. "The New Institutional Economics: Taking Stock, Looking Ahead," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 595-613, September. [Downloadable!] (restricted)
  5. Lambsdorff, Johann Graf, 2002. " Corruption and Rent-Seeking," Public Choice, Springer, vol. 113(1-2), pages 97-125, October. [Downloadable!] (restricted)
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  7. Sobel, Russell S., 2008. "Testing Baumol: Institutional quality and the productivity of entrepreneurship," Journal of Business Venturing, Elsevier, vol. 23(6), pages 641-655, November. [Downloadable!] (restricted)
  8. Leora Klapper & Luc Laeven & Raghuram Rajan, 2004. "Business Environment and Firm Entry: Evidence from International Data," NBER Working Papers 10380, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Alvarez, Sharon A., 2007. "Entrepreneurial rents and the theory of the firm," Journal of Business Venturing, Elsevier, vol. 22(3), pages 427-442, May. [Downloadable!] (restricted)
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  12. Baumol, William J, 1990. "Entrepreneurship: Productive, Unproductive, and Destructive," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 893-921, October. [Downloadable!] (restricted)
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  15. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2002. "Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development," NBER Working Papers 9305, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. Charles I. Jones, 2001. "Was an Industrial Revolution Inevitable? Economic Growth Over the Very Long Run," The B.E. Journal of Macroeconomics, Berkeley Electronic Press, vol. 0(2). [Downloadable!]
  17. Axel Dreher & Martin Gassebner, 2007. "Greasing the wheels of entrepreneurship? The impact of regulations and corruption on firm entry," KOF Working papers 07-166, KOF Swiss Economic Institute, ETH Zurich. [Downloadable!]
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  18. Oriana Bandiera, 2003. "Land Reform, the Market for Protection, and the Origins of the Sicilian Mafia: Theory and Evidence," Journal of Law, Economics and Organization, Oxford University Press, vol. 19(1), pages 218-244, April.
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  22. Henrekson, Magnus, 2007. "Entrepreneurship and Institutions," Working Paper Series 707, Research Institute of Industrial Economics. [Downloadable!]
  23. Acemoglu, Daron & Johnson, Simon & Robinson, James A., 2005. "Institutions as a Fundamental Cause of Long-Run Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 6, pages 385-472 Elsevier. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Naude, Wim, 2009. "Out with the sleaze, in with the ease: Insufficient for entrepreneurial development?," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
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