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The Entrepreneurial Rent: The Value of and Compensation for Entrepreneurship

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Abstract

The surplus that is created in a successful entrepreneurial venture is much higher than the profit corresponding to the risk-adjusted market rate of return. The part of the surplus that exceeds this level may be enoted “entrepreneurial rent.” Such rents normally disappear in the long run but so-called isolating mechanisms ensure that these rents persist in the short or medium run. Entrepreneurial rents arise when successful entrepreneurship is exercised and entrepreneurial firms create and successfully commercialize something new and unique. The presence of and search for entrepreneurial rents is a prerequisite for the innovations and structural change required to generate economic growth. High ex post compensation for successful entrepreneurship cannot be taxed harshly without affecting entrepreneurs’ willingness to supply effort.

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  • Henrekson, Magnus & Stenkula, Mikael, 2016. "The Entrepreneurial Rent: The Value of and Compensation for Entrepreneurship," Working Paper Series 1128, Research Institute of Industrial Economics, revised 02 Mar 2017.
  • Handle: RePEc:hhs:iuiwop:1128
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    1. Henrekson, Magnus & Sanandaji, Tino, 2013. "Small Business Activity Does not Measure Entrepreneurship," Working Paper Series 959, Research Institute of Industrial Economics, revised 26 Jan 2014.
    2. Aghion, Philippe & Akcigit, Ufuk & Bergeaud, Antonin & Blundell, Richard William & Hémous, David, 2015. "Innovation and Top Income Inequality," CEPR Discussion Papers 10659, C.E.P.R. Discussion Papers.
    3. William J. Baumol, 2013. "The Microtheory of Innovative Entrepreneurship," Journal of Economic Sociology, National Research University Higher School of Economics, vol. 14(3), pages 96-108.
    4. Peter Lewin & Steven E. Phelan, 2002. "Rents and Resources: A Market Process Perspective," Chapters,in: Entrepreneurship and the Firm, chapter 11 Edward Elgar Publishing.
    5. Nelson, Richard R, 1973. "Recent Exercises in Growth Accounting: New Understanding or Dead End?," American Economic Review, American Economic Association, vol. 63(3), pages 462-468, June.
    6. Sharon A. Alvarez, "undated". "Two Theories of Entrepreneurship: Alternative Assumptions and the Study of Entrepreneurial Action," Papers on Entrepreneurship, Growth and Public Policy 2005-19, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
    7. Knudsen Thorbjørn & Swedberg Richard, 2009. "Capitalist Entrepreneurship: Making Profit through the Unmaking of Economic Orders," Capitalism and Society, De Gruyter, vol. 4(2), pages 1-28, October.
    8. Alvarez, Sharon A., 2005. "Theories of Entrepreneurship: Alternative Assumptions and the Study of Entrepreneurial Action," Foundations and Trends(R) in Entrepreneurship, now publishers, vol. 1(3), pages 105-148, June.
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    Keywords

    Entrepreneurship; Economic rent; Entrepreneurial rent; Innovation; Imitation;

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • 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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