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Testing Baumol: Institutional quality and the productivity of entrepreneurship

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  • Sobel, Russell S.

Abstract

Baumol’s (1990) theory of productive and unproductive entrepreneurship is a significant recent contribution to the economics of entrepreneurship literature. He hypothesizes that entrepreneurial individuals channel their effort in different directions depending on the quality of prevailing economic, political, and legal institutions. This institutional structure determines the relative reward to investing entrepreneurial energies into productive market activities versus unproductive political and legal activities (e.g., lobbying and lawsuits). Good institutions channel effort into productive entrepreneurship, sustaining higher rates of economic growth. I test and confirm Baumol’s theory, and discuss its significance to the literature and policy reform.
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Suggested Citation

  • 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.
  • Handle: RePEc:eee:jbvent:v:23:y:2008:i:6:p:641-655
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    References listed on IDEAS

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    1. Sobel, Russell S & Garrett, Thomas A, 2002. "On the Measurement of Rent Seeking and Its Social Opportunity Cost," Public Choice, Springer, vol. 112(1-2), pages 115-136, July.
    2. James A. Dorn, 2002. "Economic Development and Freedom:The Legacy of Peter Bauer," Cato Journal, Cato Journal, Cato Institute, vol. 22(2), pages 355-371, Fall.
    3. Baumol, William J., 1996. "Entrepreneurship: Productive, unproductive, and destructive," Journal of Business Venturing, Elsevier, vol. 11(1), pages 3-22, January.
    4. Christopher J. Coyne & Peter T. Leeson, 2004. "The Plight of Underdeveloped Countries," Cato Journal, Cato Journal, Cato Institute, vol. 24(3), pages 235-249, Fall.
    5. Israel M. Kirzner, 1997. "Entrepreneurial Discovery and the Competitive Market Process: An Austrian Approach," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 60-85, March.
    6. Benjamin Powell, 2003. "Economic Freedom and Growth: The Case of the Celtic Tiger," Cato Journal, Cato Journal, Cato Institute, vol. 22(3), pages 431-448, Winter.
    7. Tollison, Robert D, 1982. "Rent Seeking: A Survey," Kyklos, Wiley Blackwell, vol. 35(4), pages 575-602.
    8. James D. Gwartney & Robert A. Lawson & Randall G. Holcombe, 1999. "Economic Freedom and the Environment for Economic Growth," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 155(4), pages 643-643, December.
    9. Russell S. Sobel & Joshua C. Hall, 2007. "The Effect of Judicial Selection Processes on Judicial Quality: The Role of Partisan Politics," Cato Journal, Cato Journal, Cato Institute, vol. 27(1), pages 69-82, Winter.
    10. Jason Henderson, 2002. "Building the rural economy with high-growth entrepreneurs," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 45-70.
    11. repec:cto:journl:v:18:y:1998:i:2:p: is not listed on IDEAS
    12. W. Kenn Farr & Richard A. Lord & J. Larry Wolfenbarger, 1998. "Economic Freedom, Political Freedom, and Economic Well-Being: A Causality Analysis," Cato Journal, Cato Journal, Cato Institute, vol. 18(2), pages 247-262, Fall.
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