The Microtheory of Innovative Entrepreneurship

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Entrepreneurs are widely recognized for the vital contributions they make to economic growth and general welfare, yet until fairly recently entrepreneurship was not considered worthy of serious economic study. Today, progress has been made to integrate entrepreneurship into macroeconomics, but until now the entrepreneur has been almost completely excluded from microeconomics and standard theoretical models of the firm. The Microtheory of Innovative Entrepreneurship provides the framework for introducing entrepreneurship into mainstream microtheory and incorporating the activities of entrepreneurs, inventors, and managers into standard models of the firm.

William Baumol distinguishes between the innovative entrepreneur, who comes up with new ideas and puts them into practice, and the replicative entrepreneur, which can be anyone who launches a new business venture, regardless of whether similar ventures already exist. Baumol puts forward a quasi-formal theoretical analysis of the innovative entrepreneur's influential role in economic life. In doing so, he opens the way to bringing innovative entrepreneurship into the accepted body of mainstream microeconomics, and offers valuable insights that can be used to design more effective policies. The Microtheory of Innovative Entrepreneurship lays the foundation for a new kind of microtheory that reflects the innovative entrepreneur's importance to economic growth and prosperity.

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What People Are Saying

Even as innovative entrepreneurship has emerged as the goal for policymakers around the globe, economists have struggled to find its proper place in microtheory. No more. In this pathbreaking new book, William Baumol provides the blueprint for understanding the crucial role of entrepreneurship and its contribution to innovation and ultimately economic growth. This lively and thoughtful book highlights the distinct role entrepreneurs play in the economy and reveals why the entrepreneur can no longer remain the invisible man in economic theory.
David B. Audretsch, author of "The Entrepreneurial Society"
Baumol is one of the giants in the entrepreneurship field. The Microtheory of Innovative Entrepreneurship will be widely read, discussed, and debated, and is likely to have a significant impact on the scholarly conversation.
Peter G. Klein, University of Missouri
This book is a timely and valuable contribution to the economics of entrepreneurship. Baumol's ambitious goal is to give the entrepreneur his rightful place in economic theory. He demonstrates that, contrary to conventional thinking, the elusive figure of the entrepreneur is indeed amenable to logical economic analysis.
Simon C. Parker, University of Western Ontario
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Product Details

Meet the Author

William J. Baumol is professor of economics and academic director of the Berkley Center for Entrepreneurial Studies at New York University. His many books include "The Free-Market Innovation Machine: Analyzing the Growth Miracle of Capitalism" and" The Invention of Enterprise: Entrepreneurship from Ancient Mesopotamia to Modern Times" (both Princeton).

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Table of Contents

List of Figures and Tables ix
PREFACE: The Innovative Entrepreneur in Dynamic Microtheory xi
INTRODUCTION: Bringing Entrepreneurship and Innovation into the Theory of Value 1
CHAPTER 1: Entrepreneurship in Economic Theory: Reasons for Its Absence and Goals for Its Restoration 9

PART I: Pricing, Remuneration, and Allocation of the Agents of Innovation
CHAPTER 2: Toward Characterization of the Innovation Industry: The David-Goliath Symbiosis 25
CHAPTER 3: Entrepreneurship, Invention, and Pricing: Toward Static Microtheory 36
CHAPTER 4: Oligopolistic "Red Queen" Innovation Games, Mandatory Price Discrimination, and Markets in Innovation 57

PART II: Welfare Theory: Technology Transfer, Imitation, and Creative Destruction
CHAPTER 5: Optimal Innovation Spillovers: The Growth-Distribution Trade-off 77
CHAPTER 6: Enterprising Technology Dissemination: Toward Optimal Transfer Pricing and the Invaluable Contribution of "Mere Imitation" 101
CHAPTER 7: The Entrepreneur and the Beneficial Externalities of Creative Destruction 128

PART III: Institutions, Payoffs, and the Entrepreneur's Choice of Activity: Historical Origins
CHAPTER 8: Economic Warfare as a "Red Queen" Game: The Emergence of Productive Entrepreneurship 139
CHAPTER 9: On the Origins of Widespread Productive Entrepreneurship 152
CHAPTER 10: The Allocation of Entrepreneurship Does Matter 165
CHAPTER 11: Mega-enterprising Redesign of Governing Institutions: Keystone of Dynamic Microtheory 172
CHAPTER 12: Summing Up: Yes, the Theory of Entrepreneurship Is on Its Way 188

Notes 197
References 225
Index 237

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