Economics of Entrepreneurship by Randall Westgren
Academy of Management Review
Strategic Entrepreneurship Journal, 2019
Research Summary How do new entrants create and capture value in established industries? Starting... more Research Summary How do new entrants create and capture value in established industries? Starting from the foundations of neoclassical economics we model entrepreneurial entry and competition as occurring simultaneously in production technology space and product attribute space. Our model’s central feature is to disaggregate entrepreneurial rents into four components: arbitrage, innovation, organization, and uncertainty-bearing. This permits us to model the nature of value creation from a common analytical platform, and to measure value capture as a set of distinct rent streams available to multiple stakeholders over time.
Special Entrepreneurship Double Issue, 2020
This paper takes the subjective value theory, conception of economic goods, and the hierarchy of ... more This paper takes the subjective value theory, conception of economic goods, and the hierarchy of needs from Carl Menger's Grundsätze der Volkswirtschaftslehre (1871) to elaborate a model of strategic entrepreneurship. Menger's account of subjective valuation by buyers of goods in market exchange fills a gap in most conceptual approaches to entrepreneurship, which are based on a highly impermeable boundary around the entrepreneurial firm. We examine how this account "closes" an economic model of entry for an entrepreneurial firm in an existing rivalry network by making the assessment of value explicit with respect to buyer needs relative to goods sold by incumbent firms. A formal representation of Menger's needs hierarchy in the face of qualitatively different market goods is the centerpiece of the strategic entrepreneurship model. This conceptual model is tied to methods of eliciting subjective valuations of product attributes and buyer needs fulfilment from th...
Philosophy of Management, 2021
At the centenary of Frank H. Knight’s Risk, Uncertainty, and Profit (1921), we explore the contin... more At the centenary of Frank H. Knight’s Risk, Uncertainty, and Profit (1921), we explore the continuing relevance of Knightian uncertainty to the theory and practice of entrepreneurship. There are three challenges facing such assessment. First, RUP is complex and difficult to interpret. The key but neglected element of RUP is that Knight’s account is not solely about risk and uncertainty as states of nature, but about how an agent’s beliefs about uncertain outcomes and confidence in those beliefs guide their choices. Second, RUP is Knight’s only effort in this area. His subsequent career led elsewhere, so he did not engage with subsequent interpretations of this work. Third, much of the current literature emphasizes that decisions must be different under the two states of nature with a consequent misunderstanding of entrepreneurial agency. This paper addresses each challenge in sequence. First, we explicate Knight’s (1921) approach and explain why that approach is murky. Second, as a ...
American Journal of Agricultural Economics, 1977
This paper comments on faulty modeling by Ladd and Martin (1976) to establish production input va... more This paper comments on faulty modeling by Ladd and Martin (1976) to establish production input values.
Philosophy of Management, 2021
At the centenary of Frank H. Knight's Risk, Uncertainty, and Profit (1921), we explore the contin... more At the centenary of Frank H. Knight's Risk, Uncertainty, and Profit (1921), we explore the continuing relevance of Knightian uncertainty to the theory and practice of entrepreneurship. There are three challenges facing such assessment. First, RUP is complex and difficult to interpret. The key but neglected element of RUP is that Knight's account is not solely about risk and uncertainty as states of nature, but about how an agent's beliefs about uncertain outcomes and confidence in those beliefs guide their choices. Second, RUP is Knight's only effort in this area. His subsequent career led elsewhere, so he did not engage with subsequent interpretations of this work. Third, much of the current literature emphasizes that decisions must be different under the two states of nature with a consequent misunderstanding of entrepreneurial agency. This paper addresses each challenge in sequence. First, we explicate Knight's (1921) approach and explain why that approach is murky. Second, as a complement to Knight's interpretation, we examine Frank P. Ramsey's approach to subjective probabilities to help clarify Knight's murky approach. What links Knight and Ramsey is a shared pragmatism about entrepreneurial agency under uncertainty that depends upon the beliefs about, and confidence in, their judgments of possible outcomes. This Knight-Ramsey approach does not require actor's behaviors to be determined by the class of uncertain environment (whether risk, uncertainty, or ambiguity) they face. We focus on the response by the entrepreneur to the existence of uncertainty in all its forms. We argue that this reductive account provides a foundation to examine common problems in management, including managerial hubris, the interaction between entrepreneurs and venture capitalists, and the need for experimentation (such as prototyping and market research) in advance of new product and venture launches. Third, we critique current literature that favors epistemic purism about the ontology of risk and uncertainty and ignores Knight-Ramsey pragmatism in meeting uncertainty, such as using formal and informal institutions for uncertainty mitigation. Our account locates Frank Knight's subtleties in entrepreneurial behavior firmly in the literature on entrepreneurial agency a century later.
Academy of Management Review, 2020
This paper is part of a DIALOGUE series in the Academy of Management Review that deals with wheth... more This paper is part of a DIALOGUE series in the Academy of Management Review that deals with whether the boundaries between aleatory and epistemic uncertainty and mitigable and immitigable uncertainty can coincide. We claim that they cannot. Not all epistemic uncertainty is mitigable and not all aleatory uncertainty is not.
The Quarterly Journal of Austrian Economics, 2020
This paper takes the subjective value theory, conception of economic goods, and the hierarchy of ... more This paper takes the subjective value theory, conception of economic goods, and the hierarchy of needs from Carl Menger's Grundsätze der Volkswirtschaft-slehre (1871) to elaborate a model of strategic entrepreneurship. Menger's account of subjective valuation by buyers of goods in market exchange fills a gap in most conceptual approaches to entrepreneurship, which are based on a highly impermeable boundary around the entrepreneurial firm. We examine how this account "closes" an economic model of entry for an entrepreneurial firm in an existing rivalry network by making the assessment of value explicit with respect to buyer needs relative to goods sold by incumbent firms. A formal representation of Menger's needs hierarchy in the face of qualitatively different market goods is the centerpiece of the strategic entrepreneurship model. This conceptual model is tied to methods of eliciting subjective valuations of product attributes and buyer needs fulfilment from the literatures of consumer behavior, marketing, and organizational psychology. This serves as a methodological basis for scholarship in entrepreneurship.
Strategic Entrepreneurship Journal, 2019
Research Summary: How do new entrants create and capture value in established industries? Startin... more Research Summary: How do new entrants create and capture value in established industries? Starting from the foundations of neoclassical economics, we model entrepreneurial entry and competition as occurring simultaneously in production technology space and product attribute space. Our model's central feature is to disaggregate entrepreneurial rents into four components: arbitrage, innovation, organization, and uncertainty-bearing. This permits us to model the nature of value creation from a common analytical platform, and to measure value capture as a set of distinct rent streams available to multiple stakeholders over time. Managerial Summary: Although there is broad consensus that the essence of entrepreneurship is the creation and capture of new value, both scholars and practitioners have struggled to connect this basic exhortation to the entrepre-neurial process. This paper argues that returns to entrepre-neurial action can be generated through four main mechanisms: innovation, uncertainty-bearing, new business models, or inter-industry arbitrage-either uniquely, or in combination. Examining these mechanisms for value creation together reveals implications for how best to organize and manage the entrepreneurial process so that that returns to entrepreneurial action can be appropriated equitably. K E Y W O R D S economic history, entrepreneurial rents, entrepreneurship, strategic entrepreneurship, value creation
U.S. agricultural markets have undergone a tendency of structural change from open/spot market ex... more U.S. agricultural markets have undergone a tendency of structural change from open/spot market exchanges to an increasing prevalence of vertically coordinated market structures (Boehlje, 1995, 1999; Martinez, 1999; Barkema and Cook, 1993; Hurt, 1994; Drabenstott, 1994). The magnitude of this change has prompted inquiries to the development of new theoretical and analytical methods to the study of structural change processes
Academy of Management Proceedings, 2007
Highly turbulent environments require firms to act entrepreneurially. The returns to entrepreneur... more Highly turbulent environments require firms to act entrepreneurially. The returns to entrepreneurial activities are known as entrepreneurial rents. Following the payments perspective, these rents are allocated to the entrepreneurial resources of the firm as factor payments. However, unlike other factor payments, little is known about how to value these types of rents. An analysis of the economics and management literature reveals that entrepreneurial rents are a return to alertness, subjective judgment, asset control, and uncertainty bearing. Furthermore, entrepreneurial rents are noncontractible and temporary. This paper introduces two complementary valuation models that capture these characteristics and that explicitly impute value to various entrepreneurial activities.
Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, 2009
Rapid technological innovation and globalization have led to increasingly complex agri-food suppl... more Rapid technological innovation and globalization have led to increasingly complex agri-food supply chains and networks, and uncertain agri-food markets. Given this type of competitive environment, management scholars have argued that agri-food firms that adopt capabilities for entrepreneurship will outperform firms that do not. We use agent-based simulation methods to explore this hypothesis. Agent-based models are particularly relevant in this study as they allow for the explicit simulation of the entrepreneurial behaviors and firm interactions that lead to wealth creation. In our analysis, we find that entrepreneurial capabilities of alertness, risk-taking, and efficiency vary in their effect on firm performance given alternative agri-food strategic landscape configurations.
Academy of Management Proceedings, 2013
We examine recent literature on the concept of opportunity, notably Alvarez and Barney (2010) and... more We examine recent literature on the concept of opportunity, notably Alvarez and Barney (2010) and . We consider the ongoing discourse about the nature of opportunities, including whether they are inherently objective or subjective, and whether there is clear and sufficient distinction between "discovery" and "creation" opportunities.
Organizational Economics and Management by Randall Westgren
International Journal of Technology Intelligence and Planning, Mar 20, 2015
ABSTRACT
Academy of Management Proceedings, 2019
In this study we examine the phenomenon of identity in an organizational collective-i.e. an assoc... more In this study we examine the phenomenon of identity in an organizational collective-i.e. an association of organizations. We see an organizational collective as a social actor, just like an individual or organization, and as such has the same kind of identity properties and implications. More specifically, we examine these issues in the context of wine trails-an organizational form that is a voluntary association of member organizations (wineries) that come together to pursue collective action-particularly joint marketing types of activities. The voluntary nature of these collectives, combined with the inherent competition among members of the collective, accentuates the role of identity as the cognitive and social "glue" that holds the collective together and facilitates effective action. We examine the effects of identity-related concepts, such as legitimacy and identification, on members' commitment to the collective.
Numerous theoretical approaches to farmland leasing contract choice have been developed with litt... more Numerous theoretical approaches to farmland leasing contract choice have been developed with little consistent empirical support, particularly for the Corn Belt. A unique theoretical approach to explaining farmers' lease preferences is presented, using a combination of transaction cost economics and property rights theory. Results demonstrate that both transactional and certain producer characteristics are important motivators of contract choice.
American Journal of Agricultural Economics, 1987
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Economics of Entrepreneurship by Randall Westgren
Organizational Economics and Management by Randall Westgren
Keywords Group formation · Group agency · Agent-based modeling