Extreme Events, Entrepreneurial Start-Ups, and Innovation: Theoretical Conjectures

Thomas Gries,Wim Naudé

doi:10.1007/s41885-021-00089-0

Abstract

In light of the COVID-19 pandemic, we scrutinize what has been established in the literature on whether entrepreneurship can cause and resolve extreme events, the immediate and long-run impacts of extreme events on entrepreneurship, and whether extreme events can positively impact (some) entrepreneurship and innovation. Based on this, we utilize a partial equilibrium model to provide several conjectures on the impact of COVID-19 on entrepreneurship, and to derive policy recommendations for recovery. We illustrate that while entrepreneurship recovery will benefit from measures such as direct subsidies for start-ups, firms’ revenue losses, and loan liabilities, it will also benefit from aggregate demand-side support and income redistribution measures, as well as from measures that facilitate the innovation-response to the Keynesian supply-shock caused by the pandemic, such as access to online retail and well-functioning global transportation and logistics.

Highlights

The economic consequences of the COVID-19 pandemic that broke out at the end of 2019 are the most destructive since the Second World War (World Bank 2020)
We argue that the particularities of the COVID-19 crisis need to be taken explicitly into account, and that these are different from other extreme events
We summarize the literature from the points of view of whether and how entrepreneurship can cause or resolve major crises (“Can entrepreneurship cause and resolve extreme events?”), how entrepreneurs are affected and cope in the aftermath of a crises (“How are entrepreneurs affected by extreme events?”), and whether and how entrepreneurship and innovation are affected over the long-run (“What are the long-run implications for entrepreneurship and innovation?”)

Summary

Introduction

The economic consequences of the COVID-19 pandemic that broke out at the end of 2019 are the most destructive since the Second World War (World Bank 2020). Having described in the sub-sections above the basic role of entrepreneurship as spotting and using opportunities to create new start-ups and bring new (incrementally) innovative product varieties to the market, we will use this simple theoretical model to investigate the effects of a COVID-19 like “Keynesian” supply shock.

Results

Conclusion