Scandinavian Working Papers in Economics
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Research Institute of Industrial Economics (IFN) Working Paper Series

No 766:
Entrepreneurship and Second-best Institutions: Going Beyond Baumolís Typology

Robin Douhan and Magnus Henrekson ()

Abstract: This paper reconsiders the predominant typology pioneered by Baumol (1990) between productive, unproductive and destructive entrepreneurship. Baumolís 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 Schumpeterís 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.

Keywords: Entrepreneurship; Innovation; Institutions; (follow links to similar papers)

JEL-Codes: L50; M13; O17; O31; (follow links to similar papers)

20 pages, September 23, 2008, Revised August 27, 2009

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This paper is published as:
Douhan, Robin and Magnus Henrekson, (2010), 'Entrepreneurship and Second-best Institutions: Going Beyond Baumolís Typology', Journal of Evolutionary Economics, Vol. 20, August, No. 4, pages 629-643

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