In chapter 12, two kinds of entrepreneurs were discussed, the Kirznerian entrepr

Question

In chapter 12, two kinds of entrepreneurs were discussed, the Kirznerian entrepreneur moving towards equilibrium and the Schumpterian entrepreneur moving away from equilibrium. Critically examine each theories of entrepreneurship using real-world examples.

IV. Kirznerian Alertness as a Critical Point of Logic
In the context of autarky, where a Robinson Crusoe formulates some plan and occasionally alters it as circumstances require, the distinction between the UCLA tradition and the UVA tradition loses its significance. The insights of comparative institutions analysis can be given no play in an institutionless setting. Further, the distinction between the neoclassical construction as articulated by Shmanske and the Austrian construction as formulated by Kirzner is, in this context, mostly semantic as opposed to substantive. When the only coordination being discussed is that between an isolated individual's plans and his or her own perceptions of the relevant constraints and alternatives, there simply isn't much scope for differences. In fact, there isn't much scope for discussion.
        Kirzner writes of alertness, or entrepreneurial discovery, that lies outside the cost-benefit calculus and changes the parameters of the optimizing equation; Shmanske writes of the costs of discovery, which have evidently fallen below the benefits of discovery at the precise point the discovery is made. The process of adjusting plans to a new reality?or to a new perception of an old reality?is a fast-working one in both the neoclassical and the Austrian view. But in identifying the nature of the adjustment process, Shmanske follows Newton while Kirzner follows Menger.
        According to Shmanske (1994, p. 208), the individual formulates a new plan in an instant?or, at least, the individual starts to think about formulating a new plan in an instant. Acknowledging the application of turtle theory here, we might carry the logic a step or two further and say that the individual is preparing to start to think about formulating a new plan?or, at least, will be preparing start in an instant or so. However many turtles are actually involved, optimality prevails continuously: There is an optimal rate of adjustment to the post-discovery situation, an optimal acceleration toward the optimal rate, an optimal surge toward the optimal acceleration, and so on.
        Kirzner (1982, p. 146) discusses the dynamics of the immediate post-discovery period in terms of Menger's Law. According to this law, the value of ends attaches itself to the means for achieving those ends. But at the instant of discovery, the individual's evaluation of available means, which reflects his or her prediscovery ends, is out of line with the new postdiscovery ends. Menger's Law reasserts itself, however, "once the old means-ends framework has been completely and unquestionably replaced by the new one." The use of the phrase "completely and unquestionably" hints that the adjustment following the "instant of ... entrepreneurial discovery" might itself not be instantaneous. But the lack of further discussion of the rate of adjustment suggests either that it is sufficiently rapid that further analysis is unwarranted or, perhaps, that further investigation of the actual adjustment speed is the business of cognitive psychology rather than of economics: Is the individual "hit" by the idea that the means now have a new value? Does the idea "dawn" on him or her, or does it "eventually soak in"? Any of these phrases and implied speeds of adjustment can be accommodated by Kirzner's formulation.
        When the context of this discussion is changed from autarky to a market economy, the continual reassertion of Menger's Law?and of Jevons' Law of One Price?in the face of continual changes in economic realities and in perceptions of them is no longer a matter of cognitive psychology alone. The economist must explain how the prices of goods here and goods there, the prices of goods now and goods later, and the prices of producers' goods and corresponding consumers' goods are brought into conformity with one another. Kirzner posits a certain entrepreneurial alertness to price discrepancies and to the implied profit opportunities as the ultimate basis for our claim of a tendency toward equilibrium.
        Positing alertness, the sine qua non of entrepreneurship which lies outside the cost-benefit framework, involves more than a stipulative definition of entrepreneurship or an empirical claim about the behavior of entrepreneurs. It entails a fundamental point of logic. Considerations of costs and benefits that have been packed into the supply and demand curves which define market conditions cannot at the same time be the basis for adjusting the relevant price to conform to those market conditions. Alternatively stated, if the costs of adjusting a price to reflect conventionally defined costs and benefits are themselves incorporated into the cost-benefit calculus, then the unadjusted price is simply conceived to be an adjusted price. Conflating the costs of a price adjustment and costs requiring a price adjustment is, in fact, precisely what gives rise to convoluted UCLA-style arguments in which disequilibrium is inconceivable.
        There is nothing inherently objectionable about treating some aspects of price adjustment in terms of costs and benefits. Quite to the contrary, such cost-benefit analysis is to be recommended if it can shed light on some particular aspect of equilibration such as the special difficulties of adjusting prices or wages appropriately during episodes of inflation or deflation or during periods of large federal budget deficits, when credit and asset markets tend to be unstable. But, in general, a cost-benefit analysis of price adjustment does not substitute for the notion of entrepreneurial alertness. It merely pushes the positing of alertness one step back in the overall argument (Kirzner, 1979, p. 142). What forces in the market bring the costs of adjusting price into line with the benefits of adjusting price? If a cost-benefit answer is given to this question, then the positing of alertness is pushed still another step back.
        There may appear to be a certain formal similarity, here, between Mises' regression theorem, which links the current value of gold-based money to the non-monetary value of gold in some bygone era, and what we might call the Schultz-Shmanske regression theorem, which envisions an infinite cascading of markets for entrepreneurship. But the very essence of Mises' argument is that the regression is not infinite; the most gigantic turtle in his theory actually has something to stand on. By virtue of its having a use value as well as a monetary value, gold serves as anchor and allows monetary theorists to establish the relationship between tomorrow's expected prices and today's observed prices without getting caught in an infinite regress. The Schultz-Shmanske regression, however, is infinite and can be truncated only by eventual recourse to Kirznerian alertness or some effectively similar notion.

V. Riddles in Both Worlds
Kirzner's concept of alertness has application in both an absolute and a relative sense. Fundamental methodological questions about the science of economics and fundamental socio-political questions about the organization of society can be asked in terms of the general quality of entrepreneurship. Is entrepreneurial alertness sufficiently pervasive and effective in a market economy to produce equilibrating tendencies? This issue, sometimes posed in the form of a riddle, has haunted classrooms and conferences for many years. The question itself, however, is so fundamental that a negative answer is inconsistent with the claim that economics has a subject matter. As Hayek (1955, p. 39) has taught us, only if there actually exists some effective tendency toward order is there any order to study. Economic inquiry, then, presupposes entrepreneurial alertness.
        The more policy-relevant questions are couched in terms of comparative institutions. Is entrepreneurial alertness more characteristic of a market-oriented economy than of a centrally directed economy? Does the level of taxation have an effect on the alertness of entrepreneurs? Economists who pay due attention to the entrepreneur in their theorizing are inclined to answer these questions in the affirmative. But attempts to articulate the answer in terms of Kirznerian alertness are not always successful or persuasive. Alertness, according to Kirzner, is exercised costlessly, and so any after-tax profits at all or other gains of any kind should suffice to call it forth. Why should costless alertness not be always exercised to the fullest? This and related questions are appropriately identified by Shmanske as "riddles" in Kirznerian theorizing.
        Shmanske has provided an insightful answer to these riddles by distinguishing between developing the capacity to be alert to profit opportunities and actually exercising the alertness. Cost-benefit analysis applies to the developing but not to the exercising. Let me note here, though, that this reconciliation, which will likely be accepted by Kirzner as a friendly amendment and fruitful development, is itself the result of an act of intellectual entrepreneurship and is better understood as Kirznerian alertness than as still another instance of continuous (intellectual) equilibrium. On the basis of Shmanske's amendment to the Kirznerian framework, it follows straightforwardly that the very capacity for alertness will be greater in a market-oriented, low-tax economy.
        Shmanske's own approach to normative inquiry, about which he provides only a hint (Shmanske, 1994, p. 221), turns on the identification of "artificial," or "unnecessary," costs, such as those associated with license requirements and (presumably) minimum-wage legislation. He expresses a preference for institutional arrangements that minimize these costs. But this approach creates some riddles for Shmanske. If "genuine" costs would have to be incurred in the process of eliminating "artificial" costs, then continuing to incur the artificial costs may, all things considered, be the cost-effective option. Also, is the widespread unemployment associated with a depression attributable to a genuine or an artificial cost of equilibration? And just how?and at what cost?would the element of artificiality be removed? Answering these and similar questions would seem to require Shmanske to abandon the UCLA tradition in favor of the comparative-institutions analyses that underlie the moderate neoclassical and Austrian traditions.

Explanation / Answer

The theories of entreneurship : the activity or process/activity of setting up a new business venture & taking up all the pro & cons of the business.to be prepared for taking the risk on grounds of financial aspects no of theories exist but all these fall in the same stream,

1) Economic theories 2) Resource based theories 3) Psychological theories 4) Anthropological theories5) opportunity based theories.

Economic theory : Entreneurship & economic growth takes place when conditions are favourable b) Incentives works as motivators for the growth of organisation. the economic incentive may be of taxation policy, industrial policies , fininacial polcies for easy financial structures for industries ,avalibility for raw materials either through imports , infrastructure availibility technology transfer through foriegn policies

SOCIOLOGICAL THEORY: the societys values,feligious beliefs,customs & tradition of the country, influence the behaviour of individuals in the society which gives boost to entreneurship.Entrepreneur is a role preformer for the society.

Psychological theory: the psychological character plays an important role in entrepreneurship for high achivement avision & mission , fore sight for uplift the organisation even the ability to face the opposition. these characters are inherited from the family culture .

THEORY OF HIGH ACHIVEMENT MOTIVATION : Two main character istic of entrepreneurship a) performing things in ainnovative &better way.

b) decision making under uncertain conditions

c) the people with high achivement orientation are more likely to become professional entreneurs

d) such experts are not influcenced by money or external incentives .they only concentrate in their works.they consider companys profit as a scale of success & competency.

According to McClelland aperson requires three type of needs 1) for achivement 2) for power 3) for affiliation.

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