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A tale of two Kirzners Presentation from AoM 2011 San Antonio Henrik Berglund Chalmers University of Technology Center for Business Innovation www.henrikberglund.com twitter: khberglund
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Henrik Berglund - A tale of two Kirzners

Nov 22, 2014

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Business

Henrik Berglund

Review of Israel Kirzner's work on entrepreneurship, and of related work by entrepreneurship researchers.
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Page 1: Henrik Berglund - A tale of two Kirzners

A tale of two Kirzners

Presentation from AoM 2011 San Antonio

Henrik Berglund

Chalmers University of TechnologyCenter for Business Innovation

www.henrikberglund.com twitter: khberglund

Page 2: Henrik Berglund - A tale of two Kirzners

Israel Kirzner

• Student of Mises, inspired by Hayek

• Important work on entrepreneurship

• Alertness, discovery and opportunities.

Page 3: Henrik Berglund - A tale of two Kirzners

Kirzner in context

• Part of the greater Austrian tradition (uncertainty, subjectivism & market process)

• But his works often speak to ”neoclassical” economists

• Focusing on entrepreneurship as an abstract economic function

Page 4: Henrik Berglund - A tale of two Kirzners

Why is Kirzner interesting?

• Well cited among entrepreneurship scholars

• Has influenced important entrepreneurship research (e.g. Shane and Venkataraman, 2000)

• But which Kirzner has exterted this influence?

Page 5: Henrik Berglund - A tale of two Kirzners

Why is Kirzner interesting?

• Well cited among entrepreneurship scholars

• Has influenced important entrepreneurship research (e.g. Shane and Venkataraman, 2000)

• But which Kirzner has exterted this influence?

Kirzner Mark I

Page 6: Henrik Berglund - A tale of two Kirzners

Why is Kirzner interesting?

• Well cited among entrepreneurship scholars

• Has influenced important entrepreneurship research (e.g. Shane and Venkataraman, 2000)

• But which Kirzner has exterted this influence?

Kirzner Mark II

Page 7: Henrik Berglund - A tale of two Kirzners

Kirzner Mark I

• Single time period (uncertainty abstracted away)

• Objectively existing arbitrage opportunities

• Alertness as passively responding

• Key references: 1973, 1997

Page 8: Henrik Berglund - A tale of two Kirzners

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).

Page 9: Henrik Berglund - A tale of two Kirzners

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).

Page 10: Henrik Berglund - A tale of two Kirzners

Kirzner Mark II

• Multiple time periods

• Uncertainty is essential

• Alertness: speculation and creativity

• Key references: Kirzner 1982/1985, Kirzner 1999

Page 11: Henrik Berglund - A tale of two Kirzners

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)

Page 12: Henrik Berglund - A tale of two Kirzners

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).

Page 13: Henrik Berglund - A tale of two Kirzners

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)

Page 14: Henrik Berglund - A tale of two Kirzners

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).

Page 15: Henrik Berglund - A tale of two Kirzners

“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

Page 16: Henrik Berglund - A tale of two Kirzners

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)

Page 17: Henrik Berglund - A tale of two Kirzners

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).

Page 18: Henrik Berglund - A tale of two Kirzners

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).

Page 19: Henrik Berglund - A tale of two Kirzners

Kirzner I & II - So what?

• Avoid mistakes (e.g. misplaced concreteness) by understanding Kirzner as part of the greater Austrian tradition

• But still valuable as inspirational heuristic for empirical research

Page 20: Henrik Berglund - A tale of two Kirzners

Backup

Page 21: Henrik Berglund - A tale of two Kirzners

Asset ownership

“An important point, is that ownership and entrepreneurship are to be viewed as completely separate functions” (Kirzner 1978, p. 47)

Page 22: Henrik Berglund - A tale of two Kirzners

Asset 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).

Page 23: Henrik Berglund - A tale of two Kirzners

Henrik Berglund

Chalmers University of TechnologyCenter for Business Innovation

www.henrikberglund.com twitter: khberglund

Thank You!