Economics of Entrepreneurship

Entrepreneurship plays a central role in economic life, yet mainstream economics has long struggled to define and integrate it coherently. Despite early recognition from thinkers like Say, Schumpeter, and Knight, the entrepreneur has been largely absent from post-war economic models, in part due to the rise of equilibrium-based frameworks and perfect competition assumptions, which leave little room for dynamic agents. Modern approaches often reduce entrepreneurship to measurable phenomena such as self-employment, small business creation, or industry structure. This occupational or structural framing informs much of the current empirical work, but it risks missing the deeper essence of entrepreneurial activity. Classical theorists conceptualize the entrepreneur not by job title or firm size, but through behavioral traits such as innovativeness (Schumpeter), alertness to opportunity (Kirzner), and judgment under uncertainty (Knight). These aspects highlight entrepreneurship as a distinctive mode of decision-making and resource allocation in uncertain contexts, rather than a fixed role or firm attribute. This distinction poses challenges for measurement and policy, as commonly used indicators may capture the by-products of entrepreneurship without grasping its functional core. A more robust economic analysis of entrepreneurship would thus treat it as a pervasive and context-dependent behavioral function, not reducible to occupation or firm size. Understanding entrepreneurship in this way allows for deeper insights into firm formation, innovation, and economic change.

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