Journal of Entrepreneurship and Public PolicyA (partial) review of entrepreneurship literature across disciplinesNoel Campbell David T. Mitchell

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A (partial) review ofentrepreneurship literature

across disciplinesNoel Campbell and David T. Mitchell

College of Business, University of Central Arkansas, Conway, Arkansas, USA

Abstract

Purpose – The purpose of this paper is to stimulate researchers’ interest by acquainting them withsome aspects of the entrepreneurship literature they may not have known.Design/methodology/approach – The paper is a non-meta-analytic literature review of severalliteratures in entrepreneurship.Findings – The entrepreneurship literature is vast and can be found in every discipline wherehumans and their behaviour are the object of analysis.Research limitations/implications – Because the entrepreneurship literature is so large andwidespread, the paper reviews only a small, deliberately chosen sample of the literature.Originality/value – To the authors’ knowledge, no one has previously written a unified review of themarket entrepreneurship, political entrepreneurship, and public choice.

Keywords Rent seeking, Political entrepreneurship, Public choice and entrepreneurship,Entrepreneurship policy, Entrepreneurship literature review, Entrepreneurialism, Public policy

Paper type Literature review

1. IntroductionThe academic entrepreneurship literature is vast. It is easy to name the names of majorentrepreneurship researchers in various disciplines, but it is much harder to find andsummarize the literature. Much of it is in books or book serials, which makes researchmore difficult because many of these sources are not easily delivered by personalcomputers. Because an important essence of entrepreneurship is action, the linesbetween entrepreneurial practical advice, consulting output, popular press publishing,and academic literature are especially broad and fuzzy. Similarly, as entrepreneurshipis about perceiving opportunities and acting upon this perception – whenever,wherever, and however these opportunities are perceived – the study of entrepreneurialaction “properly” belongs to an exceptionally broad collection of academic disciplines.Some of these disciplines readily communicate across the disciplinary divide; others donot. For example, economics routinely communicates with political science and thebusiness disciplines, but business and political science correspond less intensively.Business readily communicates with psychology, but economics communicates withpsychology much less intensively. The situation leads to a multiplicity of effort and aproliferation of discipline-specific jargon. Results from one field are transferred toothers slowly and with difficulty, despite common acknowledgement of the“interdisciplinary-ness” of the entrepreneurship field and its journals. We imagine adiagram of the universe of entrepreneurship literature to be a Venn diagram of manydifferent circles. Each circle represents an academic discipline; for example, marketing,management, economics, political science, psychology, sociology, and geography. Someof these circles exist as dyads or triads with comparatively small intersection sets.Some of these dyads and triads appear to be completely separate from other union sets.

The current issue and full text archive of this journal is available atwww.emeraldinsight.com/2045-2101.htm

Journal of Entrepreneurship andPublic Policy

Vol. 1 No. 2, 2012pp. 183-199

r Emerald Group Publishing Limited2045-2101

DOI 10.1108/20452101211261453

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For example, consider three excellent documents: Kuratko’s (business) “Theemergence of entrepreneurship education: Development, trends, and challenges”(Kuratko, 2005); Audretsch’s (economics) “Entrepreneurship: a survey of the literature”(Audretsch, 2002), and Van Praag (economics) and Versloot’s (economics) “What is thevalue of entrepreneurship? A review of recent research” (Van Praag and Versloot,2007). As of March 3, 2012, Kuratko (2005) has 311 citations according to GoogleScholar, while Audretsch, 2002 has 248 citations, and Van Praag and Versloot (2007)has 186 citations. Kuratko’s piece effectively serves as a literature review article for abroader field of knowledge than just the pedagogy of entrepreneurship. Kuratko andAudretsch have written together and are on the faculty at the same university, butKuratko’s article and Audretsch’s article come from very different literatures. There islittle overlap between journal titles in Kuratko’s and Audretsch’s references, much lessin specific journal articles. Kuratko offers a list of high-quality entrepreneurshipjournals. Between Kuratko and Van Praag and Versloot, only the Journal of BusinessVenturing and the Strategic Management Journal appear both on Kuratko’s list and inVan Praag and Versloot’s references. Although these titles account for 25 percent ofKuratko’s list, they comprise only 4.4 percent of the Van Praag and Versloot references.“The emergence of entrepreneurship education: Development, trends, and challenges”(Kuratko, 2005) was published by Entrepreneurship: Theory & Practice, a journalthat is both recognizably an entrepreneurship journal and recognizably a businessdiscipline journal. The Journal of Small Business Strategy is also recognizably anentrepreneurship journal and business discipline journal. The Journal of SmallBusiness Strategy released the Carraher (business) and Paridon (business) study,“Entrepreneurship journal rankings across the discipline” (Carraher and Paridon,2008) which ranked the top 50 entrepreneurship journals. Only seven of Kuratko’slisted journals are included in the Carraher and Paridon ranking of the top 50entrepreneurship journals, but Kuratko’s list does not include seven of the top tenCarraher and Paridon journals. Of Audretsch’s 257 references, only two are drawn fromKuratko’s listed journals, both from the Journal of Business Venturing. Outside of thenotable exception of Small Business Economics, none of Audretsch’s references arefrom journals listed by Carraher and Paridon. Carraher and Paridon have SmallBusiness Economics listed as 29th of 50 journals. None of these articles cite Schneider( political science) and Teske’s ( political science) “Toward a theory of the politicalentrepreneur: evidence from local government” (Schneider and Teske, 1992). Thisarticle was published in the American Political Science Review, one of the top journalsin political science, and the article has 195 Google Scholar citations. None of thesearticles cite Baumol’s (economics) “Entrepreneurship: productive, unproductive, anddestructive” (Baumol, 1990), which was published in the prestigious Journal of PoliticalEconomy and has 2,074 citations in Google Scholar, nor Baumol’s “Entrepreneurship ineconomic theory,” published in the American Economic Review (Baumol, 1968) – 912citations in Google Scholar.

We are neither criticizing nor faulting anyone’s scholarship. These articles werewritten for specific audiences, but to say that is to make our point. Despite the commonacknowledgment that focussed, disciplined inquiry into entrepreneurship occurs onall floors of the Ivory Tower and beyond in the Real World, separate and largelynon-communicative audiences for entrepreneurship research continue to exist.

Aggravating these conditions is the observation that research interest inentrepreneurship seems to always fall at the intersection of more solidly establishedfields, i.e., at the intersection of marketing and management, or at the intersection of

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management and economics, and so on. It seems that entrepreneurship is in themainstream of none of the social sciences or business disciplines.

Therefore, a comprehensive review of the entrepreneurship literature seems nearlyimpossible to do, short of a massive commitment of time and financial resources onthe part of a team of researchers. Lacking access to such bountiful resources, it seemsto us that a researcher must decide on a research strategy and drill through theentrepreneurship literature (at least, of the literature of which the researcher is aware)according to that strategy. This is what we do in the remainder of this paper. Ourstrategy is simple and modest. We wish to acquaint with each other some of those“dyads” and “triads” which we know of and which we think might benefit from a closeracquaintance.

2. The nature of entrepreneurial activity2(a) Entrepreneurship as a field of researchThe study of entrepreneurship as a field rather than as a phenomenon observed inother fields of research is comparatively new. As a result, definitional issues haveloomed large in the literature. In their massively cited (3,907 Google Scholar citationsas of March 3, 2012), Shane and Venkataraman (2000) create boundaries for the field ofentrepreneurship research. They build upon Venkataraman (1997), and define theresearch field as “the scholarly examination of how, by whom, and with what effectsopportunities to create future goods and services are discovered, evaluated, andexploited.” (Shane and Venkataraman, 2000, p. 218) Therefore, the essential elements ofentrepreneurship theory and research are the “sources of opportunities; the processes ofdiscovery, evaluation, and exploitation of opportunities; and the set of individuals whodiscover, evaluate, and exploit them” (Shane and Venkataraman, 2000, p. 218).

Therefore, entrepreneurship is greater than starting new businesses or managing asmall business: “Entrepreneurship does not require, but can include, the creation ofnew organizations” (Shane and Venkataraman, 2000, p. 219). Furthermore, the field ofentrepreneurship is greater than the study of the entrepreneur: “Entrepreneurialbehavior is transitory [y]. [I]t is improbable that entrepreneurship can be explainedsolely by reference to a characteristic of certain people independent of the situationsin which they find themselves” (Shane and Venkataraman, 2000, p. 218). Thus,entrepreneurship is dependent upon or influenced by “population-level factors [y][s]ocietal factors [y] [and the] institutional environment [y]” (Shane andVenkataraman, 2000, p. 219) in which the potential entrepreneur perceives and actsupon the potential opportunity. Business and social science researchers often refer tothe “rules of the game” and “institutions.” Both terms refer to the guidelines of socialand economic interaction that most people know and usually follow. These guidelinesmay be formal – such as laws, court rulings, written regulations, and public programs– or they may be informal – such as social norms, general expectations of personalconduct, and “how we do business in these parts.” These guidelines strongly influencethe costs and benefits of most of the choices individuals face; therefore, they partiallydetermine which behavior is rational, in the economic sense of the term.

2(b) Baumol’s useful frameworkIn the context of Shane and Venkataraman’s “population-level factors, societal factors,and the institutional environment,” most – but certainly not all – would-be entrepreneurswill be alert to or search for opportunities for self-gain or self-advancement. Not allresulting entrepreneurship will be beneficial to the economy or society overall, even if it

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enriches the entrepreneur (Baumol’s 1990). Much entrepreneurship is productive andincreases net wealth in society; some is unproductive and simply transfers wealth fromone person to another; and, finally, some entrepreneurship is destructive and destroyswealth (on net) in the process of transferring wealth from one person to another.Imagine that an entrepreneur creates an innovative logistical arrangement that reducestransaction costs along his supply chain. This innovation creates economic value, and thetotal wealth of society will eventually increase as a result. Now, imagine an innovative useof a legal doctrine that allows the litigant to profit but the costs to his competitors andcustomers is more than his benefit. Normally, we applaud innovation, but in this case theinnovation would be detrimental to society’s wealth. Some legal systems and othersocietal institutions encourage more of this type of detrimental entrepreneurship relativeto the encouragement of productive entrepreneurship. Those societies might have just asmany entrepreneurs, but many of the entrepreneurs focus on transferring wealth insteadof creating it. We expect those countries to be poorer, and we find them to be poorer(Murphy et al., 1991; Bhagwati, 1982; Olson, 1996; Sobel, 2008).

Baumol’s (1990) key insight was that individuals will be more alert to and moreaggressively pursue productive, unproductive, or destructive entrepreneurialopportunities depending upon the relative returns to productive, unproductive, ordestructive entrepreneurship. Moreover, the returns of productive, unproductive, anddestructive entrepreneurship depend upon societies’ institutions.

Many scholars have developed the concept that we ought to build societies where it ismore promising to be an entrepreneur who creates value than an entrepreneur whotransfers value. These scholars have tended to focus on institutions, or, the rules formaking rules (Landes, 1949). Buchanan (1999), Brennan and Buchanan (1977) andBuchanan and Tullock (1962) focus on the overarching rules of society. How aredecisions made? How are rights protected? Others, such as Fukuyama (1995) and Weber(1920), focus on the ways that trust in a society encourages a “virtuous circle,”encouraging a wide range of good behaviors, including but not limited to productiveentrepreneurship (instead of unproductive or destructive entrepreneurship). Shleifer andVishny (1993) focus on the way that certain societies allow and encourage corruptionwhile others do not. Corruption encourages destructive entrepreneurship; it encouragesnon-optimal types and levels of investment, and corruption encourages smart andhardworking people to become corrupt officials instead of productive entrepreneurs.

At root, entrepreneurship is about perceiving a gainful opportunity; then riskingtime, treasure, and resources to pursue a perceived gainful opportunity through thecreation of novelty or the reduction of ignorance. Usually, the expected gain is to go tothe actor, the entrepreneur, but not always. Frequently, the perceived opportunity liesin the market, but not always. Entrepreneurship is as easily found in our political livesas it is in our economic lives. Entrepreneurship may be productive, unproductive, ordestructive to society’s wealth. Entrepreneurship is also – and appears to alwayshave been – widespread in human societies. Where you have humans, you will findsome form of entrepreneurship. Everyone has the potential and the facility to be anentrepreneur, but some people have more; others have less. Some people choose to acton this potential; others, less so. Market entrepreneurship is the deliberate introductionof novelty, innovation, or arbitrage into the production and exchange processes.Political entrepreneurship is the deliberate introduction of novelty, innovation, orarbitrage into the political process.

As the institutions of societies affect our choices in general, they affect our choicesabout entrepreneurial behavior in particular, including our perceptions of

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opportunities, the type of entrepreneurial behavior considered, and the intensityof entrepreneurial action. Thus, the institutions may stimulate productiveentrepreneurship or non-productive entrepreneurship. Moreover, in many practicalsettings, a society’s institutions are made practical and operational through its publicpolicies. Policy makers, whether elected, appointed, or employed, are aware ofentrepreneurship’s potential. Over the past four decades, policies designed to promoteentrepreneurship – especially at the local and sub-national level – have become asignificant component of policy makers’ economic development repertoires.Nonetheless, public policies may have the unintended consequence of fosteringnon-productive entrepreneurship, thus leaving unexploited gains from exchange andretarding the economic growth rate. Moreover, public policy that is intended to supportentrepreneurship may be prone to rent-seeking and political capture. Policy makersand policy implementers have access to the powers of government and the publicpurse. If entrepreneurs ( political or otherwise) expect that policy makers might usethose powers to support entrepreneurship, this will attract efforts by narrow, local, andpersonal interests in society to sway those policies in certain directions over others. Asthe general public typically has little at stake in a particular policy decision, policy mayconform to specialized interest more than it conforms to a general, public interest.

3. Market entrepreneurshipMarket entrepreneurship is the deliberate introduction of novelty, innovation, orarbitrage into the production and exchange processes. Market entrepreneurial action is acornerstone of the market process, having significant and measurable impact on marketoutcomes. Furthermore, market entrepreneurship – or the choices of market entrepreneurs– respond to the incentives created by public policies. Not surprisingly, those peopleand organizations engaged in the political process have sought to use public policy (theproximate outcome of the political process) to influence market entrepreneurship.

3(a) Market entrepreneurship and economic outcomesOutside of practitioner or consultative interest, researchers and the general public careabout market entrepreneurship only to the extent that entrepreneurship affectseconomic outcomes. Quantifying those effects was the aim of “What is the value ofentrepreneurship? A review of recent research” (Van Praag and Versloot, 2007).An extended version of this article was published as Van Praag and Versloot (2008).Van Praag and Versloot review the empirical literature, rather than the theoreticalliterature, about entrepreneurial contributions to economic value creation. They notethat the theoretical literature is usefully reviewed in Parker (2004) and in many ofthe empirical studies that Van Praag and Versloot, themselves, review. Neither do VanPraag and Vandersloot relate the behavior of entrepreneurial firms to economicoutcomes (e.g. Wynarczyk and Watson, 2005; Maes et al., 2005, Norton and Moore,2006), nor assess how institutional factors comparatively affect the growth andproductivity of entrepreneurial and other firms differently (e.g. Hartarska andGonzalez-Vega, 2006). Over the 12 years studied by Van Praag and Versloot, 57 studiestesting 87 relationships appeared in their sample of journals.

Van Praag and Versloot (2007) is a significant contribution to the literature because,as the authors say:

Surprisingly, given the relevance of showing the relationship between entrepreneurship andeconomic outcomes, this article is the first review of the (primary) empirical literature in this

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area. More precisely, it is the first review of high-quality economics and management studies,focusing on various types of contributions that entrepreneurs can make to the economy interms of quantifiable measures and evaluating the entrepreneurs’ performance in these areasrelative to their counterparts, i.e. larger, older or incumbent firms. In these senses our study isunique ( p. 352).

They continue in a footnote:

To our knowledge, five previous and recent studies are somewhat related: Acs and Audretsch(2005) on entrepreneurship and innovation; Carree and Thurik (2003) on entrepreneurshipand economic growth from a macroeconomic perspective; Biggs (2002), discussing small andmedium sized firms (SMEs) and employment generation and innovation; Caves (1998),focusing on entry, exit and turnover, as well as firm growth and production efficiency, and,finally, Sutton (1997) on employment generation (Van Praag and Versloot, 2007, p. 352).

Van Praag and Versloot focussed on those journals ranked AA or A by the TinbergenInstitute Research School, as well as “the leading entrepreneurship journal in the fieldof economics” (Van Praag and Versloot, 2007, p. 353) and “the leading entrepreneurshipjournal in the field of management” (Van Praag and Versloot, 2007, p. 353) and threetop management journals. Thus, their sample was drawn from the following journals:American Economic Review, Econometrica, Journal of Finance, Journal of PoliticalEconomy, Quarterly Journal of Economics, Review of Economic Studies, AccountingReview, Econometric Theory, Economic Journal, European Economic Review, Gamesand Economic Behavior, International Economic Review, Journal of Accounting andEconomics, Journal of Business and Economic Statistics, Journal of Econometrics,Journal of Economic Literature, Journal of Economic Perspectives, Journal of EconomicTheory, Journal of Environmental Economics and Management, Journal of FinancialEconomics, Journal of Financial Intermediation, Journal of Health Economics, Journalof Human Resources, Journal of International Economics, Journal of Labor Economics,Journal of Law, Economics and Organization, Journal of Marketing Research, Journal ofMonetary Economics, Journal of Public Economics, Journal of Risk and Uncertainty,Journal of the European Economic Association, Journal of Urban Economics,Management Science, Marketing Science, Mathematics of Operations Research,Operations Research, Rand Journal of Economics, Review of Economics and Statistics,Review of Financial Studies, World Bank Economic Review, Small Business Economics,Journal of Business Venturing, Strategic Management Journal, Academy ofManagement Journal, and Administrative Science Quarterly.

It is worth noting that only four journals – the Academy of Management Journal,Administrative Science Quarterly, Small Business Economics, and the StrategicManagement Journal – appear in both the Van Praag and Versloot data set and in theCarraher and Paridon (2008) list of the top entrepreneurship journals.

Concerning innovation, Van Praag and Versloot (2007) conclude:

Entrepreneurs invest no more in innovation than their counterparts and they produce fewerinnovations. The quality of their innovations may be higher and these innovations seem to beproduced more efficiently[y]. Concerning the commercialization of innovations, the levels arerelatively higher for entrepreneurs (in terms of share of sales). Nevertheless, the relativebenefit of commercialization by entrepreneurs vis-a-vis their counterparts is not clear yet.Furthermore, entrepreneurs and counterparts are equally likely to adopt low-cost innovations,whereas the counterparts are more likely to adopt higher cost innovations ( p. 365).

Turning to factor productivity, they write that the results are “mostly not in support ofrelatively high levels of entrepreneurs’ labor productivity,” and total factor productivity

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“levels of entrepreneurs are not different from or lower than those of their counterparts”(Van Praag and Versloot, 2007, p. 368) (emphasis added). However, in the growth ofvalue added, “entrepreneurs’ production value grows relatively fast in comparison tothe control group [y].” (Van Praag and Versloot, 2007, p. 370), and that “laborproductivity growth is higher in entrepreneurial firms than in other firms. Both studiesbased on micro- and macro-data show that the effect of increased entrepreneurialactivity engenders labor productivity growth” (Van Praag and Versloot, 2007, p. 371).Even so, “The evidence for growth in TFP levels is meager” (Van Praag and Versloot,2007):

Entrepreneurs create more employment than their counterparts, relative to their size. [y].[E]ntrepreneurs create more jobs, but they do so in a rather dynamic way, which isdisadvantageous for the stability of the labor market. [y]. The evidence suggests ratherconvincingly that there is a positive long-term effect of more entrepreneurial activity on labordemand, also by non-entrepreneurial firms (pp. 372, 377).

3(b) Market entrepreneurship and public policyAudretsch (2002) was written to summarize the literature for use by European Unionofficialdom. Based upon his references, Audretsch focussed on the economics andregional studies literatures, rather than the business and entrepreneurship educationliteratures, in writing this report. Audretsch (2002) details the theoretical justificationfor government intervention in the economy in the case of entrepreneurship policyin terms familiar to anyone who has taken an economics class. The root justification forgovernment intervention in support of entrepreneurship lies in correcting marketfailures due to the existence of external costs, external benefits, or public goods. “[T]hemandate for public policy intervention is the result of three fundamental sources ofmarket failure – network externalities, knowledge externalities, and learningexternalities” (Audretsch, 2002):

Network externalities result from the value of an individual’s or firm’s capabilities beingconditional upon the geographic proximity of complementary firms and individuals. [y]Such market failure can occur where there is a potential for geographic clustering, sectorallinkages, or networks. [K]knowledge, which involves new ideas, is inherently a public good[y]. The second source of market failure is that positive economic value for third-party firmsand individuals is created even in entrepreneurial firms that fail [; knowledge that wouldotherwise be lost]. The third source of market failure involves the learning or demonstrationeffect, emanating from entrepreneurial activity. [y] Other people will learn theentrepreneurship is a viable alternative to the status quo. By filling these gaps left bymarket failure, public policy can create a virtuous entrepreneurial cycle, where entrepreneursbecome networked and linked to each other, and strong role models of entrepreneurship existfor others to emulate (pp. 47-8).

In this report, Audretsch wrote extensively on the potential role public policy may playin influencing entrepreneurial behavior. “If the actual degree of entrepreneurship [y]deviates from the targeted degree of entrepreneurship [y], government policies maybe undertaken to alter the basic forces shaping entrepreneurial activity. [S]uchentrepreneurship policies are implemented by changing the different componentsshaping either the demand side, the supply side, or else the risk-reward profiledirectly.”

Audretsch envisions several types of entrepreneurship policy. Policies may promoteentrepreneurship by altering the factors shaping opportunities for entrepreneurship,

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such as market entry deregulation, privatization, and promoting firm linkages andclusters. Other types of policies promote entrepreneurship by altering factors shapingthe supply side, such as increasing the capabilities of individuals and firms andfacilitating access to resources, i.e. immigration and diversity policies, education andtraining, provision of finance, and promotional and educational campaigns to improvesociety’s views of entrepreneurs. Other policies change the risk-reward profile directly;policies such as taxes, subsidies, labor market rules, and bankruptcy regulation(Audretsch, 2002, p. 31).

Audretsch draws a sharp distinction between traditional policies oriented towardthe protection and promotion of small- and-medium enterprises (SMEs) and“entrepreneurship policy.” In contrast, entrepreneurship policy is a relatively newphenomenon:

An important distinction should be made between traditional SME (small business) policiesand entrepreneurship policies. SME policy is almost exclusively targeted toward the existingstock of enterprises and virtually all of the instruments included in the policy portfolio aredesigned to promote the viability of the SMEs. By contrast, entrepreneurship policy hasa much broader focus. The definition introduced by Lundstrom and Stevenson (2001,p. 19) [y] is certainly applicable [y], “Entrepreneurship policy consists of measures takento stimulate more entrepreneurial behavior in a region or country [y] We defineentrepreneurship policy as those measures intended to directly influence the level ofentrepreneurial vitality in a country or region (Audretsch, 2002, p. 46).

Drawing on Lundstrom and Stevenson (2002), Audretsch writes that entrepreneurshipis distinct from SME policy in two distinct ways. The first is the breadth of policyorientation and instruments:

[E]ntrepreneurship policy is more focused on the process of change, regardless of theorganizational unit, whereas SME policy is focused exclusively on the enterprise level.Entrepreneurship policy also has a greater sensitivity to framework or environmentalconditions that shape the decision making process of entrepreneurs. In this sense,entrepreneurship policy tends to be more systemic than SME policy (Audretsch, 2002, p. 46).

The second major distinction between entrepreneurship policy and SME policy is thatnearly every country has a formal governmental office or agency mandated to promotethe interests of SMEs. As of yet, no country has a similar office or agency to promoteentrepreneurship, per se.

Audretsch states that as policy makers have become more attuned to the natureof the innovation and entrepreneurship growth engine of economies, the nature ofpublic policy has shifted in two important ways. First, policy has shifted away fromregulation, antitrust, and public ownership toward policies “enabling the creation andcommercialization of knowledge” (Audretsch, 2002, p. 48). Second, the locus of policy isshifting the national level (on one hand) and the firm level (on the other hand) to thelocal, state, and regional levels (Audretsch, 2002, p. 51).

Audretsch refers extensively to Storey (2003), which presents Storey’s empiricalwork on the incidence and breadth of actual entrepreneurship policies across thedeveloped world. These public policies are intended to remedy constraints on access tofinancing, equity investors, and markets; to promote awareness of entrepreneurship asa life choice; to enhance entrepreneurs’ (and their employees’) professional skills andaccess to other productive resources; to relieve administrative burdens on SMEs; topromote enterprise spatial clustering, and stimulate innovation and research anddevelopment. The policies include government-backed loan schemes, tax breaks for

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angel investors, government-organized trade fairs, government-promoted scienceparks and incubators, training and counseling for entrepreneurs, general educationsschemes focussing on entrepreneurship, and selective deregulation. The evidenceregarding the effectiveness of a given policy in achieving the stated end runs the gamutfrom understudied, to ineffective, to generally effective.

4. Public choice: politics without the romanceBefore turning from our discussion of “market entrepreneurship” to a discussion of“political entrepreneurship,” we wish to evaluate much of the market entrepreneurshipin the light of another field within economics, public choice. The entrepreneurshipliterature summarized by Audretsch does not seem to account for public choiceconsiderations; that is, for rationally self-interested political actors. Public policy thatis intended to support entrepreneurship may be prone to rent-seeking and politicalcapture, a theme developed most thoroughly in the public choice school of thought (e.g.Tullock, 1967; Stigler, 1971). Policy makers and policy implementers have access to thepowers of government and the public purse. If citizens expect that policy makers mightuse those powers to support entrepreneurship, this will attract efforts by narrow, local,and personal interests in society to sway those policies in certain directions over others.As the general public typically has little at stake in a particular policy decision, policymay conform to specialized interest more than it conforms to a general, public interest.

Public choice is a field in economics that focusses on the incentives of all of theactors whether those actors are voters, politicians, lobbyists, or judges (Mueller, 2003).It “explains and interprets politics as the interaction between constituents and agentsseeking to advance or express their own interests” (Buchanan, 1987, p. 29). This ideabuilds on Federalist #51, “If men were angels, no government would be necessary.If angels were to govern men, neither external nor internal controls on governmentwould be necessary. In framing a government which is to be administered by men overmen, the great difficulty lies in this: you must first enable the government to control thegoverned; and in the next place oblige it to control itself. A dependence on the people is,no doubt, the primary control on the government; but experience has taught mankindthe necessity of auxiliary precautions” (Madison, 1788). The public choice perspectiveis not that government or lobbyists or politicians are evil (or greedy, cynical, corrupt,etc.), but that the person in the voting booth, in the legislative chamber, or in theregulator’s office is no different than the person in the market: the same person is in allof these settings, and faces similar incentives in all settings (Buchanan, 1999).Regardless of the setting, the decision makers are fundamentally the same, as are themeans and ends of choices, and the methods a person employs in making a choice.

Many researchers and practitioners wish to apply scientific analysis and “solve” avariety of problems for entrepreneurs by finding the optimal policies; whether thesepolicies are the optimal tax on businesses, or the optimal technology transfer policy, orthe optimal set of consumer protection regulations, or the optimal patent rules(Buchanan, 1967). Public choice concludes that the actual policies will never be theoptimal policies, because there are too many self-interested, forward-looking playerswho can affect the outcome (Kydland and Prescott, 1977).

It will be difficult even for perfectly altruistic policy makers to find the policy thatjointly maximizes all stakeholders’ happiness (Buchanan, 1969, 1975). Furthermore,voters, like any other managers, will have difficulty monitoring and managing theiragents – elected officials and public employees. Monitoring costs will always exist(Cheung, 1969; Jensen and Meckling, 1976; Fama and Jenson, 1983).

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Not only do voters face positive monitoring costs, the individual, per-person cost ofeven a very costly policy will be very small, and, even if an individual opposes a policy,there is very little she can do to actually change policy. Since individual voters will notbe able to affect the outcome of most elections, the voters will not spend much timebecoming knowledgeable about the elections. After the election most voters will notknow much about any particular policy (Olson, 1965, 1982; Caplan, 2001). Thus, Downs(1957) suggests that many if not most voters will be rationally ignorant.

This creates a situation in which small, non-general, organized interest groups caninfluence public policy to their advantage, even if at the expense of the general, publicinterest (McCormick and Tollison, 1981). Voters are one interest group, but not theonly one. Voters provide votes, but other groups provide organization, campaigning,lobbying, and of course cash. Olson (1965) compellingly demonstrates that large,general public-interest interest groups are unlikely to form, but small, narrow-interestinterest groups are likely to coalesce; therefore, policy will reflect the manipulation ofthe disorganized majority by the organized minority. Interest groups compete againsteach other to get the policy that they want. The policy that gets enacted will be thepolicy that balances marginal interest group pressure (Riker, 1962; McCormick andTollison, 1981; Becker, 1983).

The voluminous literature on rent seeking (Tollison, 1982) provides a similar,parallel perspective on these phenomena. Rent seeking is the idea that people willspend real resources in attempts to secure an advantage for themselves from thegovernment (Krueger, 1974; Tollison, 1982; Tullock, 1967). Rent seeking differs fromother types of economic activity in that it does not create mutual benefit, as do mosteconomic activities (Bhagwati, 1982). Instead of creating wealth as market activitiesgenerally do, rent seeking is simply a costly means of transferring wealth from oneeconomic entity to another. For many, seeking rents is their strategy (Bowman, 1974).

The classic example of rent seeking is when a company expends time and resourcesto convince the government to provide some sort of market protection that allows the“policy winner” to earn a quasi-monopoly profit (Tollison, 1982). Alternativelycompanies can rent seek to encourage various regulations that raise competitors’relative costs (Alchian and Allen, 1964; Salop and Scheffman, 1983). Even if aregulation raises the rent seeker’s costs, if the regulation raises competitors’ costs bymore, lobbying for the rule could be worthwhile for the rent seeker.

Economists tend to abhor rent seeking because it hinders growth (Krueger, 1974;Bhagwati, 1982; Baumol, 2002; Murphy et al., 1993; Olson, 1996). Rent seeking hurtsgrowth in several ways. It encourages the accumulation of monopoly power inmarkets, which reduce the chance for beneficial exchange (Harberger, 1971). Itencourages productive people to become rent seekers who redistribute wealth insteadof create it (Bhagwati, 1982; Baumol, 1990; Murphy et al., 1991). It encourageswell-connected people to invest in long-term projects because they know that newentrants will be prohibited. However, most people will not be well connected. Hencemost people will be wary about investing for the long term in a rent seeking society(Murphy, 1993; Olson, 1996). Rent seeking can lead to a “vicious circle” where more andmore people become involved in rent seeking, and fewer and fewer people are involvedin production (Murphy et al., 1991; Shleifer and Vishny, 1993). McChesney (1987) pointsout that once a government is organized to provide market protection, governmentofficials can then extort businesses. Finally, rent seeking can prevent the adoption ofnew technology because producers of older technology will try to protect their position(Acemoglu and Robinson, 2000).

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Because entrepreneurs tend to have small or even not-yet-existent firms, they are ata rent-seeking disadvantage relative to established, incumbent firms. They will not beas good at it, and will often lack the initial financial resources to engage in rent seeking– or defend themselves from the rent seeking of established firms – and launch a newventure. Established companies are better able to deal with new regulations thanpotential entrepreneurial entrants (Economist, 1994).

For example, one way that rent seeking can affect entrepreneurs is throughoccupational licensing (Kleiner and Krueger, 2010). Governments use licensing toprotect the public from quacks, but its use can be overstated. Professions that do notreally demand public protection, such as hair braiding, often require an expensive statelicense because existing cosmetologists want protection from market competitors.

Therefore, as Baumol (1990) explained, political and legal rules and laws, thepolitical and judicial culture, and institutions in general help determine the expectedcosts and expected rewards of rent-seeking political action relative to profit-seekingmarket action. Intentionally or unintentionally, some institutional frameworks raisethe rewards and/or lower the costs of rent-seeking unproductive or destructiveentrepreneurship relative to the rewards and costs of profit-seeking entrepreneurship.Intentionally or unintentionally, other institutional frameworks will have the oppositeeffect.

Hence, authors who call for good entrepreneurship policy or policy that will promotean entrepreneurial society (Storey, 1985; Acs and Audretsch, 2005; Acs and Storey,2004) for the benefit of all strike us as a bit optimistic. Their calls for goodentrepreneurship policy pluck a responsive chord, but public choice suggests thatoptimal policy of any sort is like Santa Claus: highly desired, but nonexistent andunlikely to ever exist.

In this milieu, the role of the entrepreneurship policy researcher is to help explainwhy current policy exists, from among the universe of possible real (as opposed toideal) policies, and to suggest policy improvements that would be consistent with arent-seeking polity; that is, to seek feasible ways to limit the scope of potentialunproductive or destructive entrepreneurship and expand the scope of potentialproductive entrepreneurship.

5. Political entrepreneurshipWe will now turn the discussion to “political entrepreneurship.” Politicalentrepreneurship is the deliberate introduction of novelty, innovation, or arbitrageinto the political process. Political entrepreneurship is a subset of non-marketentrepreneurship, more generally (Shockley et al., 2008). Political entrepreneurshipincorporates a wide variety of activities. It includes seeing an unmet need or desire fornew policy (Schneider et al., 1995), and discovering opportunities within the policymaking framework (Mintrom and Norman, 2009). “Political entrepreneurs develop newand innovative policies and galvanize otherwise difficult-to-organize, dispersedcitizens to support their policies” (Schneider and Teske, 1992, p. 742). Schneider andTeske (1992) state that political entrepreneurs are more likely to emerge when there arefactors that make entrepreneurial profits more likely and where local conditionsfacilitate a solution to collective action problems. Schneider and Teske (1992)specifically relate political entrepreneurship to “local fiscal conditions [and] localbudgetary patterns” (p. 743); or, in our language, as a function of the institutions.

Political entrepreneurship might involve seeing the potential that could be gainedfrom forming a new interest group (Ostrom, 1964; Wagner, 1966; Campbell, 1999;

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Schneider and Teske, 1992). Political entrepreneurship could involve changing thenature of a political debate (Riker, 1962). Becker (1983) and Wittman (1989, 1995) arguethat if political goals are not being achieved in the least-cost way then there is a profitopportunity. Anyone who can rearrange government activities to reduce costs can takethose cost savings and do other things with them (Holcombe, 2002). These savingscould come from doing things differently, combining political resources differently, oroutsourcing them (Milward and Provan, 1993). The cost savings are a political profitthat the entrepreneur can then apply toward the satisfaction of other goals. Of course, itis very simple to see political entrepreneurship through the more general lens of rentseeking.

We think of monetary profits as the payment for entrepreneurship (Knight, 1921).One particularly interesting concept from the political entrepreneurship literature isthat, as in other forms of non-market entrepreneurship, the profits can come in a widevariety of non-pecuniary ways: fame (Cowen, 2002; Goktepe-Hulten and Mahagaonkar,2008), reelection success (Muller, 2007), raw power, empire building, the desireto improve the world (Ruvio et al., 2010), the desire to be creative (Stewart et al., 1999),or the ability to create something lasting. All are types of profit for politicalentrepreneurship (Schneider and Teske, 1992). Pecuniary profit is, however, still relevantand has important implications (Krueger, 1974; Baumol, 1990; Bhagwati, 1982).

Political entrepreneurs have the same cognitive mechanisms as marketentrepreneurs: counterfactual thinking, affect infusion, attributional style, planningfallacy, and self-justification (Baron, 1998); not so different from the motivations ofmarket entrepreneurs (Schaver and Scott, 1991; Penrose, 1959; Baron, 1998). However,Mintrom and Norman (2009) point out that the motivations of policy entrepreneurshave received scant attention. Mintrom and Norman (2009) further state that “howcontextual factors serve to constrain and shape the actions of policy entrepreneurs alsorequires more attention” (2009, p. 661). By “contextual factors,” we take Mintrom andNorman to mean “institutions.”

6. ConclusionEntrepreneurship and public policy is a vibrant and incomplete research agenda.We have cited 490 articles, and we have barely begun. Analysis in political economy,rent seeking, public choice, and entrepreneurship has many areas waiting to beresearched. Moreover, we did not even begin to review the applicable material fromlaw, psychology, sociology, strategy, leadership, history, or finance. Nor did we reviewthe literature describing how specific policies might affect entrepreneurship. We didnot consider, in any appreciable detail, microfinance, knowledge diffusion, spillovers,incubators, patents, or any of the myriad other programs that affect and are affected byentrepreneurship policy. We did not consider the way that policies can affect whetherimitators or innovators get a greater proportion of applicable profits (Teece, 1987). Wedid not consider how public policy may affect the prior knowledge that entrepreneurshave and use to begin new ventures (Shane, 2000). We spend no time on the varioustypes of entrepreneurial policy change that might occur such as “incrementalism,policy streams, institutionalism, punctuated equilibrium, and advocacy coalitions”(Mintrom and Norman, 2009, p. 649). Obviously, this review article is not authoritative.There remains much work to do in summarizing the existing research andre-packaging it for different groups of readers.

Furthermore, there is a tremendous amount of work left to be done in the areaof entrepreneurship and public policy. We believe that the amount of new research

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as-yet-unwritten in the area of entrepreneurship and public policy is an excitingopportunity. Scholars are able to make big breakthroughs and grand advances inour understanding, and not marginal improvements or refinements at the edges,such as are available in many research fields. To cite just one sample research topic,arrived at with moderate effort at most: how might different tax regimes affect theecology of entrepreneurial firms – whether new ventures are organized as familyowned or franchise; as gazelle or lifestyle firms, etc. We do not know the answer tothese questions. We wish that researchers would write these articles quickly. We wantto read them.

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Further reading

Baum, J.R. and Locke, E.A. (2004), “The relationship of entrepreneurial traits, skill, andmotivation to subsequent venture growth”, Journal of Applied Psychology, Vol. 89 No. 4,pp. 587-98.

Brennan, G. and Buchanan, J.M. (1980), The Power to Tax, Cambridge University Press,Cambridge.

Hayes, C. (2007), “Revolt of the CEOs: a massive expansion of the federal government, supportedby big business, is on the way. Conservatives couldn’t be less prepared”, WashingtonianMonthly, May 26.

Kalt, J.P. and Zupan, M.A. (1990), “The apparent ideological behavior of legislators: testing forprincipal-agent slack in political institutions”, Journal of Law and Economics, Vol. 103No. 33, pp. 103-31.

Kleiner, M.M. (2006), “A license for protection”, Regulation, Vol. 29 No. 3, pp. 17-21.

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About the authors

Noel Campbell is the Editor-in-Chief of this journal. He is an Economist in the Economics Facultyin the College of Business at the University of Central Arkansas. As an undergraduate he studiedat Texas A&M University, and did his graduate work at George Mason University. His primaryresearch interests, not surprisingly, are public policy and entrepreneurship. Noel Campbell is thecorresponding author and can be contacted at: ncampbell@uca.edu

David T. Mitchell is an Economics Professor at the University of Central Arkansas. He serveson the Editorial Advisory Board of the Journal of Entrepreneurship and Public Policy. He holds anundergraduate degree in Economics from Clemson University, and a doctorate in Economicsfrom George Mason University. His research interests have been very diverse, ranging fromdeveloping property rights to oyster beds, to post-hurricane reconstruction in New Orleans, toexperimental evidence on the incentives to engage in duels.

To purchase reprints of this article please e-mail: reprints@emeraldinsight.comOr visit our web site for further details: www.emeraldinsight.com/reprints

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