The spatial nature of entrepreneurship

Abstract

Kirzner’s theory of entrepreneurship has far-reaching consequences. It explains the coordination of markets and of knowledge. It explains how individual entrepreneurs generate the process of economic development. And it combines Mises’s view of the market as an entrepreneurial process with Hayek’s view of the market as a means of transmitting and coordinating knowledge (Kirzner 2000; Harper 2003). Like other theories concerned with entrepreneurship and economic development processes, Kirzner’s theory is non-spatial. While this may simplify and therefore illuminate the analysis of key mechanisms of the entrepreneurial process, it also obscures some of its inherently spatial outcomes. The purpose of this paper is to extend Kirzner’s theory by explicitly introducing the role of space in entrepreneurial alertness and the coordination of markets. A spatial extension of the theory of entrepreneurship helps explain several of the most common phenomena associated with economic development, such as urbanization, migration, and changes to the profit opportunities that entrepreneurs may or may not notice. To be more specific, I am concerned here with four related spatial implications of the theory. First, there is an unavoidable “spatial positioning” of entrepreneurs that may in itself be the result of entrepreneurial alertness to profit opportunities. As such, it could amount to a discovery of superior locations for “switching on” alertness and discoverable profit opportunities. Second, the entrepreneurial process is a necessary component for constructing a realistic urban and regional economics, which would incorporate (equilibrium) results such as von Thunen’s rentdistance gradient into a more dynamic setting where entrepreneurs create and exploit agglomeration economies. Third, a spatial approach which at the same time draws on Kirzner’s theory and Frank Fetter’s theory of rent should illuminate urbanization and migration processes by relating how profits, rents, and capital values change over time due to changing land use patterns. Fourth, a spatial theory can link location and profits with (spatially delimited) institutions, where missing or underdeveloped market institutions in some