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Entrepreneurship and second-best institutions: going beyond Baumol’s typology

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  • Robin Douhan
  • Magnus Henrekson

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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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Suggested Citation

  • Robin Douhan & Magnus Henrekson, 2010. "Entrepreneurship and second-best institutions: going beyond Baumol’s typology," Journal of Evolutionary Economics, Springer, vol. 20(4), pages 629-643, August.
  • Handle: RePEc:spr:joevec:v:20:y:2010:i:4:p:629-643
    DOI: 10.1007/s00191-010-0174-4
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    Citations

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    Cited by:

    1. Djula Borozan & Josip Arneric & Ilija Coric, 0. "A comparative study of net entrepreneurial productivity in developed and post-transition economies," International Entrepreneurship and Management Journal, Springer, vol. 0, pages 1-26.
    2. Elert, Niklas & Henrekson, Magnus, 2016. "Status Quo Institutions and the Benefits of Institutional Deviations," Working Paper Series 1144, Research Institute of Industrial Economics, revised 15 Mar 2017.
    3. Henrekson, Magnus & Stenkula, Mikael, 2009. "Entrepreneurship and Public Policy," Working Paper Series 804, Research Institute of Industrial Economics.
    4. Elert, Niklas & Henrekson, Magnus, 2017. "Entrepreneurship and Institutions: A Bidirectional Relationship," Working Paper Series 1153, Research Institute of Industrial Economics, revised 05 May 2017.
    5. Tino Sanandaji & Peter T. Leeson, 2013. "Billionaires," Industrial and Corporate Change, Oxford University Press, vol. 22(1), pages 313-337, February.
    6. repec:spr:intemj:v:13:y:2017:i:3:d:10.1007_s11365-016-0427-2 is not listed on IDEAS
    7. Welter, Friederike & Smallbone, David, 2015. "Creative forces for entrepreneurship: The role of institutional change agents," Working Papers 01/15, Institut für Mittelstandsforschung (IfM) Bonn.
    8. Niklas Elert & Magnus Henrekson & Joakim Wernberg, 2016. "Two sides to the evasion: The Pirate Bay and the interdependencies of evasive entrepreneurship," Journal of Entrepreneurship and Public Policy, Emerald Group Publishing, vol. 5(2), pages 176-200, August.
    9. repec:ekd:006356:6689 is not listed on IDEAS
    10. Aparicio, Sebastian & Urbano, David & Audretsch, David, 2016. "Institutional factors, opportunity entrepreneurship and economic growth: Panel data evidence," Technological Forecasting and Social Change, Elsevier, vol. 102(C), pages 45-61.
    11. Carla Altobelli & Gaetano Fausto Esposito, 2014. "Capitale fiduciario e sviluppo a livello regionale: un’analisi esplorativa del ruolo del capitale civico e morale," RIVISTA DI ECONOMIA E STATISTICA DEL TERRITORIO, FrancoAngeli Editore, vol. 2014(3), pages 5-39.
    12. Elert, Niklas & Henrekson, Magnus & Stenkula, Mikael, 2017. "Institutional Reform for Innovation and Entrepreneurship: An Agenda for Europe," Working Paper Series 1150, Research Institute of Industrial Economics, revised 16 Feb 2017.
    13. Mrożewski Matthias, 2014. "An Empirical Analysis of Economic and Socio-Demographic Determinants of Entrepreneurship Across German Regions," International Journal of Management and Economics, De Gruyter Open, vol. 42(1), pages 60-80, June.
    14. repec:eee:jbvent:v:32:y:2017:i:5:p:461-475 is not listed on IDEAS
    15. Gregory M. Randolph, 2014. "Institutions and entrepreneurial productivity in the American states," Chapters,in: Entrepreneurial Action, Public Policy, and Economic Outcomes, chapter 6, pages 100-116 Edward Elgar Publishing.
    16. Niklas Elert & Magnus Henrekson, 2016. "Evasive entrepreneurship," Small Business Economics, Springer, vol. 47(1), pages 95-113, June.

    More about this item

    Keywords

    Entrepreneurship; Innovation; Institutions; L5; M13; O31; O17;

    JEL classification:

    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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