Here we discussed the different types theroies of entrepreneurship by prof. Harvey Leibenstein.

1. Contemporary Theories Of
Entrepreneurship
Prof. Harvey Leibenstein

2. Prof. Harvey Leibenstein
• Harvey Leibenstein was an American
economist and economic demographer. Born
in Russia, educated in Canada and the United
States (Ph.D. from Princeton University, 1951),
he served on the faculties of the University of
California, Berkeley (1951–1967) and Harvard
University (1967–1992).

3. According to Prof. Harvey Leibenstein
• X-efficiency Theory
• Critical Minimum Theory

4. X-EFFICIENCY
• X-efficiency is the degree of inefficiency in the
use of resources within the firm: it measures
the extent to which the firm fails to realize
its productive potential.
• X-efficiency arises either because the firm’s
resources are used in the wrong way or
because they are wasted, that is not used at
all.

5. • Leibenstein identifies two main roles for the
entrepreneur:1)a gap filler and (2)an input
completer.
• If not all factors of production are marketed or
if there are imperfections in markets, the
entrepreneur has to fill the gaps in the
market. To put the enterprise in motion, the
entrepreneur should fill enough of gaps.
X-EFFICIENCY THEORY

6. • The second role is input completion ,which
involves making available inputs that
improve the efficiency of existing production
methods or facilitate the introduction of new
ones .The role of the entrepreneur is to
improve the flow of information in the
market.

7. CRITICAL MINIMUM EFFORT THEORY
• According to Prof. Harvey Leibenstein the
overpopulated and underdeveloped countries are
characterized by the vicious circle of poverty.
• “In order to achieve the transition from the state
of backwardness to the more developed state,
where we can expect steady secular growth, it is
necessary, though not always sufficient condition,
that at the same point or during the same period,
the economy should receive a stimulus to growth
that is necessary than a certain critical minimum
size”.

8. • According to Leibenstein, every economy is under the
influence of two forces—’shocks’ and ‘stimulants’.
• Shocks refer to those forces which reduce the level of
output, income, employment and investment
etc.Stocks depress development forces which reverse
the wheel of development.
• Stimulants refer to those forces which raise the level of
income, output, employment and investment etc. In
other words, Stimulants impress and encourage
development forces. They are called ‘Income
Generating forces’ which lubricate the wheel of
development. Stimulants have the capacity to raise per
capita income above equilibrium level.

9. GROWTH AGENTS
• According to Leibenstein, the generation of
stimulants depends on attitudes and
motivation of the people and the incentives
given to them. However, the motivation and
incentives are useless without the main
factors of economic development.

10. According to Leibenstein, there are two types of
incentives that are found in the underdeveloped
countries:
• Zero-sum Incentives.
• Positive sum Incentives.
(i) Those incentives which do not increase national
income, but they bring a change in the
distribution of income. He calls them "Zero-Sum
incentives".
(ii) Those incentives which result in expansion of
national income. He calls them "Positive Sum
incentives".
INCENTIVES