Henrik Berglund - A tale of two Kirzners

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Review of Israel Kirzner's work on entrepreneurship, and of related work by entrepreneurship researchers.
Paper now forthcoming in Entrepreneurship Theory and Practice
http://henrikberglund.com/A%20Tale%20of%20Two%20Kirzners.pdf

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Henrik Berglund - A tale of two Kirzners

  1. 1. A tale of two Kirzners Henrik Berglund Chalmers University of Technology www.henrikberglund.com twitter: khberglund Presentation from AoM 2011 San Antonio Based on paper forthcoming in Entrepreneurship Theory and Practice http://henrikberglund.com/A%20Tale%20of%20Two%20Kirzners.pdf
  2. 2. Israel Kirzner • Student of Mises. • Important work on entrepreneurship • Alertness, discovery and opportunities.
  3. 3. Kirzner in context • Part of the greater Austrian tradition (subjectivism & market process) • Often speaking to ”neoclassical” economists. • Focusing on entrepreneurship as an abstract economic function.
  4. 4. Why is Kirzner interesting? • Well cited among entrepreneurship scholars. • Much recent influential entrepreneurship research draws on Kirzner (Shane and Venkataraman, 2000, Gaglio and Katz 2001) . • But which Kirzner?
  5. 5. Kirzner Mark I • Single time period (uncertainty abstracted away) • Objectively existing arbitrage opportunities • Alertness as passively responding • Key references: 1973, 1997.
  6. 6. Kirzner Mark I “I feel it necessary to draw attention to entrepreneurship as a responding agency. I view the entrepreneur not as a source of innovative ideas ex nihilo, but as being alert to the opportunities that exist already and are waiting to be noticed” (Kirzner, 1973: 74).
  7. 7. Related ENT “Although recognition of opportunities is a subjective process, the opportunities themselves are objective phenomena that are not known to all parties at all times.” (Shane and Venkataraman, 2000: 220).
  8. 8. Related ENT “Entrepreneurial alertness, a distinctive set of perceptual and information-processing skills, has been advanced as the cognitive engine driving the opportunity identification process” (Gaglio and Katz 2001: 95)
  9. 9. Kirzner Mark II • Multiple time periods • Uncertainty is essential • Alertness: speculation and creativity • Key references: Kirzner 1982/1985, Kirzner 1999
  10. 10. Kirzner Mark II “My emphasis on alertness to hitherto unperceived opportunities as the decisive element in the entrepreneurial function stemmed from my pursuit of a didactic purpose. This purpose was to distinguish the analysis of the market process (a process in which the entrepreneur plays the crucial role) as sharply as possible from the analysis of equilibrium states (in which all scope for entrepreneurial activity has been assumed away).” (Kirzner, 1982: 140-141)
  11. 11. Kirzner Mark II “This writer has often talked as if alertness is able to identify existing opportunities for future profit. Purists, in both linguistic usage and philosophical consistency, may certainly be excused for expressing unhappiness with such loose or metaphorical use of language in regard to the non-existent future” (Kirzner 1992: 26 note 4).
  12. 12. Kirzner Mark II “It was certainly not the intention, in deploying this analytical device, to deny that in the real world of production and (consequently) of multi- period decision making and radical uncertainty, entrepreneurship is exercised only by calling upon the entrepreneur’s qualities of boldness, innovativeness and creativity” (Kirzner, 1999: 11)
  13. 13. Kirzner Mark II “…the futurity that entrepreneurship must confront introduces the possibility that the entrepreneur may, by his own creative actions, in fact construct the future as he wishes it to be” (Kirzner 1985: 155).
  14. 14. “The profit opportunities embedded in existing prices are thus extraordinarily effective communicators of knowledge (in a sense quite different from that in which prices summarize knowledge)” (Kirzner 1992: 149). They encouraging entrepreneurs to: “conjecture (and to try out!) hunches that may in fact be closer to the truth (than the information that the prices themselves reflect)” (Kirzner 1992: 148). Kirzner Mark II
  15. 15. Related ENT “profit opportunities do not exist, objectively, when decisions are made, because the result of action cannot be known with certainty. Opportunities are essentially subjective phenomena. As such, opportunities are neither ‘discovered’ nor ‘created’ but imagined [and should be] treated as a latent concept underlying the real phenomenon of interest, namely entrepreneurial action” (Klein 2008: 176)
  16. 16. Related ENT “entrepreneurial opportunities should be thought of in relation to entrepreneurial action. From this perspective, their ontological status, i.e. whether they exist or not, is of lesser importance as the opportunity perceptions themselves provide cognitive and practical drivers or ‘points of orientation’ that more or less temporarily guide entrepreneurial actions.” (Berglund 2007: 245).
  17. 17. Related ENT “Opportunity exists out there, independently of particular actors. However, opportunities do not exist as complete, individual entities. Rather, opportunity exists as an uncountable in the form of technological possibilities, knowledge, and unfulfilled human needs backed with purchasing power. Venture ideas are the creations of individuals’ minds. They are specific (but changeable and more or less elaborate) entities that are acted upon.” (Davidsson 2003: 338-339).
  18. 18. Kirzner I & II -So what? • Avoid “misplaced concreteness” by understanding Kirzner as part of the Austrian tradition. • But still valuable as inspiration for empirical research
  19. 19. Backup
  20. 20. Assets ownership “An important point, is that ownership and entrepreneurship are to be viewed as completely separate functions” (Kirzner 1978, p. 47)
  21. 21. Assets ownership “Kirzner's entrepreneur is a curious formulation. … In what sense can an entrepreneur ever make profits if he owns no capital to make profits on?” (Rothbard, 1985, p. 282-83).

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