Entrepreneurial Profit Research Articles

Entrepreneurship as expectations management

Entrepreneurial profits flow from differences in expectations between buyers and sellers regarding the future value of resources. This article investigates whether differences in expectations can be influenced by an entrepreneur to produce greater profits. It is argued that there are several points in the entrepreneurial process where such interventions can occur and that the use of these techniques should be associated with superior wealth creation. The article also explores the ethical implications of influencing stakeholders in this way.

Non-Keynesian effects of public expenditure in Spain

Evidence is provided of non-Keynesian effects of fiscal policy in Spain within a VAR framework. Shocks to government expenditure expand activity, although moderately, in the short term, with output multipliers slightly above one. In the medium term, however, the response of output becomes significantly negative. The two main explanations proposed in the literature seem to apply here, namely higher real interest rates as a result of higher risk premia on the demand side and higher equilibrium wage reducing entrepreneurial profits and investment accordingly on the supply side.

Predicting Success or Failure on Main Street: Urban Revitalization and the Kentucky Main Street Program, 1979-1999

This study examines factors contributing to the active or inactive status of Main Street communities in Kentucky. Data were gathered on 37 Main Street communities from 1979-1999. A logistic regression analysis revealed that three variables—downtown business vacancy rates; whether or not the town was within the sphere of influence of a metropolitan area; and the composition of the Main Street board leadership—were the most important predictors of on-going Main Street activity. It was determined that more rural Main Street communities were better able than their urban counterparts to manifest the "tyranny of space" (i.e., the potential to gain excessive entrepreneurial profits) that Lösch's version of central place theory struggled so hard to eliminate. These more isolated small municipalities were successful in sustaining economic revitalization efforts because they were not in direct competition with larger urban areas. It was further surmised that the leadership approach of Main Street participants differed in the active and inactive communities, which additionally explain the active/inactive status in these municipalities.

A Critique of Kirzner's Finders-Keepers Defense of Profit

This paper criticizes Kirzner's use of the finders-keepers ethic to justify entrepreneurial profit. It does so by pursuing two lines of argumentation. First, Kirzner's defense of the justice of entrepreneurial profit is based upon treating the wage-for-labor-time exchange as legitimate. There are good reasons for doubting the justice of the wage-labor exchange. The paper argues that the profits earned by a capitalist firm employing wage-labor can not be considered to be just if we accept the juridical principle of imputation. The juridical principle of imputation asserts that people should be held legally responsible for the actions and results of the actions for which they are factually responsible. If we consider hired human beings always to be responsible agents, as is true in David Ellerman's (1992) rendition of the labor theory of property, Kirzner's defense of entrepreneurial profit generated in a capitalist enterprise is weakened. Second, the paper criticizes Kirzner's thesis that in a market economy everyone has, in principle, an equal opportunity to be an entrepreneur directing a productive enterprise or to be an entrepreneur engaging in speculation. Kirzner reaches this conclusion because he believes that credit markets in a free economy do not systematically discriminate amongst types of borrowers. This conclusion has been called into question by credit rationing models demonstrating that asset-poor individuals can be systematically denied access to loans. The credit rationing literature erodes the underpinnings of Kirzner's application of the finders-keepers ethic to the evaluation of entrepreneurial profit earned through speculation or productive creativity because it implies that all individuals do not in principle have an equal opportunity to be an entrepreneur.

Entrepreneurship, Exogenous Change and the Flexibility of Capital

Over the course of his decades of contributions to Austrian economics, Israel Kirzner has enormously enhanced our understanding of the market process by his patient and detailed explorations of the fundamental concepts of microeconon~ics. Of those fundatnenrals, the areas of entrepreneurship and capital are two in which he has made ongoing and important contributions. In this essay, I hope to explore the intersection between those two fundamental areas of inquiry by taking a Kirznerian approach to why some firms are better able than others to respond to exogenous change. I want to argue that the ability to respond to such change is rooted in the capital structure, including the huinan capital, of firms and that entrepreneurial alertness requires a capital structure with certain attributes in order for such altertness to be operationalized in the organizational structure we call the firm. To be solnewhat more concrete: often times critics of the market argue that n~hich firms prospser, is just a matter of or being at the right place at the right time when the market changes in a m7ay that benefits those actors. On the obverse side, the same critics say that those who lose out in the face of detrimental changes in exogenous circun~stances were victims of bad and those who do sunrive were just lucky. Kirzner's theory of entrepreneurship provides the core of an answer to these critics by arguing that entrepreneurial profit is not just the result of luck, but it is not due to deliberate choice either. Rather good entrepreneurs are alert to profit possibilities. Alertness sits, ;is Kirzner has argued, between luck and deliberate search. Associare I'rofessor of Economics, Associare of [he Firs1 Ye:~r, Wh~tman Hdi. St. Lawrence Llnivel-siry, Canron. NY 13017, email s~l~~~in~i~z@st~:~~v~~,ed~~

Towards a Taxonomy of Entrepreneurial Theories

JOAQUIN GUZMAN-CUEVAS IS TITULAR professor of applied economics and director of the Small and Medium Enterprise Research Unit at the University of Sevilla, Spain. The main objective of this paper is to explore the concept of 'entrepreneur', focusing on his or her functions and identifying characteristics rather than on other aspects such as the role of entrepreneurial profit or the relationship between the role of entrepreneur and macro-economic balance, or growth processes. This analysis is focused to achieve an ordination and systematisation of the contributions of the main economic and non-economic doctrines in order to form a whole or set which embraces the fundamental parts of entrepreneurship. On this basis, three fundamental approaches are found which imply three essential functions within entrepreneurship. The thought streams, with their most representative authors, are interconnected methodically and integrated in a diagram according to criteria on which those entrepreneurial functions are outstanding on each one.

Competition policy vs horizontal merger with public, entrepreneurial, and labor-managed firms

The reorganization of existing state monopolies is a major issue of Eastern reformers. Given a market monopolized by a labor-managed (LM) firm we try to compare a mixed duopoly with the case in which the original maximand of the LM monopoly is modified to take into account either entrepreneurial profits or social welfare. Welfare comparisons of the various market arrangements are then presented in order to provide some tentative policy conclusions.

Are Entrepreneurial Profits Prima Facie Deserved?

Are Entrepreneurial Profits Prima Facie Deserved?

Situation et perspectives des relations économiques germano-soviétiques au seuil des années 1980

Present Situation and Prospects for Development of German- Soviet Economie Relations in the 1980's. For many German firms, trade with East-European countries has become a tradition over the decades and accounted for 15% of German foreign trade volume prior to World War II. Internationally known companies such as Otto Wolff AG, the Krupp Group and Deutsche Bank AG have had close business ties with the U.S.S.R. since the early 20's. These relations have been upheld on a pragmatic footing under various political constellations right up to the present day. It can be considered a traditional feature of German trade with the East that private companies maintain contacts with their East-European business partners independently and without any special political or legal assistance from the state. While in the 50's and 60's the Federal Republic of Germany was in a position of front-line political confrontation with the U.S.S.R., the German business community regarded the promotion of trade relations as a stabilizing element in international politics. German trade with the East has always seen itself as a long-term, independent manifestation of the fundamental, international division of labour in the face of changing — at times rapidly changing — foreign policy doctrines. German companies geared their business relations with Eastern Europe solely to the calculable, private entrepreneurial profit and loss indices of the individual firms — without government intervention or promotion measures — and to this extent treated trade with the East, despite its unique features, as part of general worldwide international business. In the 70's, a number of treaties were concluded between the Federal Republic and the U.S.S.R., which dealt among other things with economic questions and affected mutual trade relations. The long-term German-Soviet agreement on economic cooperation concluded in May 1978, modeled on Finnish and French treaties, provides a legal basis for existing relations and projects future developments. Emphasis is placed above all on planned cooperation with regard to large projects — in particular in the energy and raw material sectors — as well as on intensifying and diversifying industrial cooperation, also involving small and medium- sized firms. The pragmatic aim of promoting trade relations between the Federal Republic and the U.S.S.R. is to create normal forms of international economic cooperation as a factor in an economically optimal, politically constructive, long- term international division of labour with the aim of achieving a calculable, mutual benefit.

Optimal dividend behaviour and taxation: A utility model

The optimum management with respect to the appropriation of entrepreneurial profits is described and explained by means of a utility model. For various reasons, distribution as well as retention of profits are supposed to be the arguments of a rather flexible utility function: a so-called ‘MCES-function.’ In conjunction with the optimum divident management, the effects of taxation are also studied: the degree of discrimination between the two components of the appropriation of profits is investigated for three systems of corporation profits taxation, namely, the classical system, the two rate system, and the imputation system. It is shown that the utility model is of a comprehensive character, which means that some other dividend models are special cases of it.

Risk, Entrepreneurship, and Tenancy

Recent papers by Cheung (1968, 1969) and Rao (1971) have provided insights on how tenure contracts can be shaped by economic forces and are thus not exogenous, as has been assumed in most studies. On the surface, however, their theories appear to be contradictory. This paper will attempt to show that the two theories are compatible. Cheung argues that the tenancy contract selected can be explained in terms of a trade-off between risk and transactions cost. Under a fixed rental system, the entire risk burden falls on the tenant, while under a hired-labor wage contract it falls on the landlord. Sharecropping permits risk sharing and is a compromise between the extremes. Sharecropping, however, has the highest transactions costs and would not be preferred unless risks are high. Thus, Cheung would argue that sharecropping would appear most frequently in areas of greatest uncertainty; otherwise, fixed rentals would be preferred. Rao hypothesizes that sharecropping contracts are common in areas of relative economic certainty with very little scope for decision making, for example, factor substitution, and where entrepreneurial profit is low. Fixed cash rents would thus be common in situations of high uncertainty where the scope for decision making is significant or where the crops are highly profitable. The two views are not contradictory if one differentiates between risks associated with decision making and exogenous or natural risks beyond the control of the farmer. The point can be illustrated by examining the tenancy situation in the Malayan paddy economy. Table 1 shows the types of tenancy contracts that existed in the five states comprising the main paddy areas in Malaya in 1957. Sharecropping is prevalent in only one state, Kelantan, which is on the east coast. In comparison with the other states which are on the west coast, Kelantan has very low yields and risks are much higher due to poor weather conditions (seasonal flooding and monsoons), the absence of government irrigation facilities, and extensive pest damage; thus, production is very erratic and frequently much of the harvest is lost. Such risks and uncertainties, however, are due to environmental conditions beyond the control of the farmer. These conditions coupled with relatively poor soil result in yields 50 percent lower than in the western states and discourage entrepreneurial endeavors. On the west coast, government irrigation facilities, better

Empirical Investigation of Entrepreneurial Goals and Customer Satisfaction

What are the relationships, if any, among enterprise profitability, other measures of entrepreneurial satisfaction, and the quality of a firm's services to its customers? A variety of answers have been given to this question, from the now traditional, conservative answer that all three are positively correlated to the belief, so prevalent in the alternative culture, that there are important negative correlations among at least some of these variables. This article reports the results of a survey study which attempted to measure entrepreneurial and customer satisfactions and firm profits and determine their correlations. The sample firms were all in a single metropolitan area and were all small enough to be managed by their owners. While the results do not necessarily apply for other firms, they nevertheless have their own interest in addition to whatever they may suggest in the way of generalization or opportunity for further research.

Uncertainty, Entrepreneurship, and Sharecropping in India

This study attempts to explain the coexistence of different farm lease arrangements in terms of the varying significance of entrepreneurial functions. In India, crop-sharing arrangements are common in areas of relative economic certainty with very little scope for decision making, for example, for product and factor substitution, and where the entrepreneurial profit is low. Fixed-cash rents are common in situations of high uncertainty where the scope for decision making is significant or where the crops are highly profitable. Efficiency considerations predominate in areas of sharecropping, favoring a smaller farm size, whereas, under high uncertainty, large size is favored for reducing risk.