Kirzner's Theory Research Articles

Israel Kirzner's Use of Narratives to Illuminate the Limitations of Neoclassical Economics and the Austrian Alternative

Abstract This article investigates how Israel Kirzner approached mainstream economists with his view of the Austrian theory. It discusses the role of narrative elements in Kirzner's theory in his use of stories to illuminate ideas in entrepreneurship, the theory of the firm, and the knowledge problem. This article argues that the use of narrative made Kirzner's theory more open to dialogue without tying him to the scientific demarcation criteria used in mainstream economics. The scientific narratives in Kirzner's work allow him to (i) emphasize the logical order of economic phenomena, (ii) highlight causal mechanisms in economic theory, (iii) make some generalizations but without perfect predictions with economics, (iv) explore different scenarios from contingent events in the economy, and (v) illustrate economic ideas with fictional but plausible cases. The article concludes that these narrative aspects help Kirzner illuminate the limitations of neoclassical economics and offer an alternative perspective based on the entrepreneurial state of “alertness” from an Austrian point of view.

Post-Socialist Culture and Entrepreneurship

In this article it is argued that locus of control beliefs and preferences concerning state action negatively affect the formation of new firms in former socialist countries. For this purpose Kirzner's theory of costless entrepreneurship is reviewed and criticized. German reunification, in which the formerly socialist East Germany joined the Federal Republic of Germany, represents an intriguing natural experiment in which the formal institutional structure of one nation was almost fully transplanted into another. Traditional as well as psychological factors are examined. The results suggest that about one-third of the east-west gap in new self-employment can be explained by inert informal institutions.

Discovering rhetoric: The ecology of enterprise in the Bourgeois Era

Deirdre McCloskey's Bourgeois Dignity deploys Israel Kirzner's theory of entrepreneurial discovery in her explanation of the Industrial Revolution. This essay examines whether Kirzner's theory can bear the analytical load that McCloskey would place on it. I identify two potential incongruities between Kirzner's theory and McCloskey's historical account but find them both unconvincing. Kirzner's entrepreneur is a good fit for McCloskey's story. I argue further that the fit can be strengthened by incorporating further elements of Kirzner's theory, including entrepreneurial alertness.

The role of market and technological knowledge in recognizing entrepreneurial opportunities

PurposeOpportunity recognition is an important aspect on entrepreneurship, especially for technology‐based ventures. Drawing on Austrian economic theory, recent studies have emphasized the importance of market knowledge in opportunity recognition. Although insightful, these studies do not take account of relationships that exist between different types of knowledge (e.g. technology and market knowledge). The authors aim to address this gap by integrating the Schumpeterian theory of opportunity development with Kirzner's theory of opportunity discovery to examine these relationships.Design/methodology/approachThe data consist of a longitudinal sample of 42 new biotechnology ventures from the USA, Finland, and Sweden.FindingsThe paper finds that both market knowledge and technological knowledge (measured as the number of patents) contribute to firms' subsequent recognition of entrepreneurial opportunities.Originality/valueThe results show the value and importance of early market knowledge and technological knowledge for subsequent opportunity recognition. The empirical findings are reflected in the light of current research on Kirznerian and Schumpeterian opportunity recognition.

Entrepreneurial networking in supply chain relationships in the automotive component industry

Purpose: The point of departure in this article is that the principles that underpin entrepreneurial networking also apply to the establishment of supply chain relationships. The theoretical base for the need for entrepreneurial networking can be found in Kirzner's theory of entrepreneurship that argued that entrepreneurs identify and act upon profit opportunities that exist in disequilibrium in order to equilibrate the economy. Problem investigated: This article explores the possibility of implementing entrepreneurial networking in supply chain relationships in the automotive component industry. Methodology: Kirzner's theory is used as a theoretical base to support the case for the development of supply chain relationships. The literature with regard to supply chain management and its relevance to entrepreneurial networking is first dealt with. The case for implementing entrepreneurial networking to strengthen supply chain relationships in the automotive component industry in South Africa is then presented.Findings: The findings of this article indicate that the principles underlying entrepreneurial networking could be applied to supply chain relationships in the automotive component industry in South Africa. The argument is mainly based on the sustainability and profitability potential of entrepreneurial networking and the similarities that exist between entrepreneurial networking and supply chain management relationships. Originality: This research is original as it explores the possibility that the principles that underpin entrepreneurial networking also apply to the establishment of supply chain relationships in the automotive component industry. Furthermore, there is a need for published research in South Africa on supply chain management, particularly relationships within the supply chain.Conclusion: Based on the sustainability and profitability potential of entrepreneurial networking and the similarities that exist between entrepreneurial networking and supply chain relationships, the principles underlying entrepreneurial networking can be applied to supply chain relationships in the automotive component industry in South Africa. The unique challenges facing this industry in the current global market further strengthen the case for the implementation of entrepreneurial networking.

Post-Socialist Culture and Entrepreneurship

In this paper it is argued that locus of control beliefs and preferences concerning state action negatively affect the formation of new firms in former socialist countries. For this purpose Kirzner's theory of costless entrepreneurship is reviewed and criticized. German reunification, in which the formerly Socialist East joined the Federal Republic of Germany, represents an intriguing natural experiment in which the formal institutional structure of one nation was almost fully transplanted into another. Traditional as well as psychological factors are examined. The results suggest that about one third of the east-west gap in new self-employment can be explained by inert informal institutions.

Teorie podnikatelského objevování

The aim of the paper is to introduce Kirzner's theory of entrepreneurial discovery as a complement and an alternative to the mainstream theory. In the first and the second sections, the author explains the main influences of Ludwig von Mises and Friedrich August von Hayek's works on entrepreneurial theory. Section three analyzes pure entrepreneurial profit and logical construction of theory as a complement to mainstream theory. To introduce the entrepreneurial market process as an alternative to mainstream theory, the fourth section begins by explaining Kirzner's approach to the critique of the possibilities for economic calculation in the system of public ownership of the means of production and his theory of monopoly. The last section is a conclusion.

An exploratory study of Israeli start-up entrepreneur usage of the internet

Internet usage and its evaluation as a source of information, compared to traditional information sources, were examined among 92 entrepreneurs of Israeli start-ups. Entrepreneurs' independent versus mediated use in internet searches was also examined. Ninety percent of the entrepreneurs in this study described the internet as an important tool, while 71% believed that they were skilled in the use of the internet, despite the fact that they primarily used basic internet services including access of a repertoire of websites and search engines. Findings of the study indicate that the internet plays a significant role in entrepreneurs' search activities, compared to traditional sources of information. Thus, the study findings reflect a change in entrepreneurial search practices and a shift toward a use of the internet. Entrepreneurs who perceived themselves as highly skilled in internet searches, tended to perform independent searches rather than rely on mediators. The convenience, accessibility and anonymity of the internet, as well as the wealth of available informative data at no cost, contributed to this pattern of findings. Additionally, the internet contains diverse information which meets the needs of entrepreneurs, especially in the venture conception phase. Entrepreneurs in this stage have minimal cash resources and, according to Kirzner's theory of ‘alertness,’ tend to seek out all possible information rather than conduct more focused searches.

A Critique of Kirzner's Concept of Sheer Ignorance

The concept of sheer ignorance states that the main obstacle to grasping hitherto unnoticed profit opportunities is the decision makers' unawareness of their ignorance about the existence of discrepancies in prices that could be eliminated through profitable arbitrage operations. The paper argues that the logical justification of such unawareness is not fully consistent with the understanding of entrepreneurial discoveries in terms of price arbitrage. It also argues that, contrary to Kirzner's theory, the logic of entrepreneurial discoveries is compatible with strategies of deliberate search and the creation of new opportunities which, in their own turn, play the important role in shaping uncertainty. The paper's approach allows to further articulate the uniqueness of Austrian research program: To focus on the generation of new knowledge by entrepreneurs, as well as on their skillful use of probabilistic and interpretive subjective judgments.

The Origins of Entrepreneurial Opportunities

Kirzner's (1973) theory of entrepreneurship emphasizes the equilibrating role of entrepreneurship. When the market is not in equilibrium, profit opportunities exist, and entrepreneurs discover and act on these profit opportunities to equilibrate the market. Because Kirzner focuses on entrepreneurial actions when profit opportunities exist, and does not describe where they come from, one could imagine a fixed stock of profit opportunities that get used up as entrepreneurs discover them. But new profit opportunities are being created constantly. A taxonomy of the origins of entrepreneurial opportunities includes factors that disequilibrate the market, factors that enhance production possibilities, and most notably, opportunities created from previous acts of entrepreneurship. Entrepreneurial actions do not use up profit opportunities, but create them, and the critical role of entrepreneurship in the creation of new profit opportunities is emphasized. This line of reasoning leads directly to policy implications regarding the economic environment conducive to entrepreneurial discovery and the role of government in research and development. This paper enhances Kirzner's theory of entrepreneurship by illustrating how entrepreneurship enlarges the stock of future entrepreneurial opportunities, and points to entrepreneurship as the engine of economic progress. Entrepreneurship occurs when an individual acts to take advantage of a profit opportunity that presents itself in the economy. In its simplest form, the entrepreneur might notice that one person is willing to sell something for less than someone else is willing to pay for it, so the entrepreneur can act as a middle man, profiting from buying at the lower price and selling for more. The profit, which is the return to the entrepreneur's alertness to the opportunity, was created entirely by the entrepreneur's activity, because the sale would not have taken place without someone having noticed the profit opportunity. The entrepreneur's activity benefits the buyer, the seller, and more generally, the entire economy. Furthermore, the entrepreneur's profit signals potential suppliers and demanders about their market opportu- nities, and even signals other potential middlemen of the profit opportunity for facilitating exchanges. Eventually the ability to earn above-normal profits will be competed away, but only after those profits have served their role in signaling a way in which resources could be more efficiently allocated in the economy. Entrepreneurship is indispensable for economic progress, but entrepreneurial activity is possible only when profit opportunities are available to the entrepreneur. This paper discusses the ways in which those profit opportunities can arise in an economy.

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~~

An Entrepreneurial Perspective of Institutional Change

Utilizing Kirzner's theory of entrepreneurial discovery, Schumpeter's two types of economic responses and the Austrian theory of institutions as building blocks, this paper constructs an entrepreneurial theory of institutional change. Focusing on the coordinating role of human institutions, this paper argues that entrepreneurial extraordinary discovery destroys the stability of institutions and creates uncertainty in the market (creative response). As a result, institutions are incapable of coordinating economic activities because market participants' stocks of knowledge are no longer adequate to solve new problems. Hence, profit gaps or mismatches of market participants' plans occur. Given new technologies, new relative prices and tastes, imitative entrepreneurs soon identify and capitalize on the opportunities created by Schumpeterian extraordinary discoveries (adaptive response). Imitators improve production methods, modify rules and alter property rights in order to improve coordination. Through learning, experimentation, trial and error, the more rewarding methods are then selected. Successful actions are imitated and repeated in the market, and gradually crystallized into new institutions which once again serve as social coordinators.

The problem of order in Austrian economics: Kirzner vs. Lachmann∗

The current controversy among Austrian economists concerns the precise way in which time and ignorance is to be incorporated into market analysis. While both sides think the market process is fundamentally orderly and coherent, they disagree about how to conceptualize that order. One side, associated mostly with Israel Kirzner, conceives of economic order in the conventional sense of a system converging towards a neoclassical notion of equilibrium. The Austrian contribution to this analysis is to emphasize the important role of entrepreneurial alertness in bringing about convergence towards equilibrium. Kirzner's theory of alertness is able to incorporate partial ignorance into economic analysis, but it does not give a satisfactory account of the consequences of real time. The other side, following Ludwig Lachmann, argues that a full appreciation of the implications of time and ignorance in economics forces us to abandon conventional notions of equilibrium and instead formulate a theory of the ‘kaleidic s...