Lesson 2

2. Max Weber’s Theory of Social Change (Emphasis on Impact of Religion):

Entrepreneurial growth is dependent upon ethical value system of the society concerned.

Important Terms:

• Spirit of Capitalism

• Protestant Ethic

3. The Uncertainty-Bearing Theory of Knight:

Entrepreneurship is genuinely associated with risk bearing.

• Insurable risks

• Non-insurable risks

The entrepreneurs expect a level of profit for bearing the uncertainty (non-insurable risks).

The salient points of Knight’s theory include:

1. The entrepreneur earns pure profits for bearing the uncertainty.

2. The probability of uncertainty or non-insurable risks cannot be statistically estimated.

3. Entrepreneurs undertake risks of varying degrees according to their ability ad inclination.

4. Profit is the reward of the entrepreneur for bearing uncertainties and risks.

5. The reward of the entrepreneur is uncertain.

6. The level of uncertainty in business can be reduced by applying the technique of consolidation.

4. Theory of Frank Young (Emphasis on Changes in Group Level Pattern):

The entrepreneurial initiatives are conditioned by group level pattern.

Solidarity groups are responsible for building entrepreneurship.

5. Economic Theory of Entrepreneurship:

Economic incentive is the main factor that influences entrepreneurial activities [G. F. Papanek (1962) and J.R. Harris (1970)]

6. Mark Casson Theory (Economic Theory):

Successful entrepreneurs demonstrate good judgement in making risky innovations, and are rewarded through either profits or salaries depending on whether they act as owners or managers of their firms.

8. Hoselitz’s Theory (Emphasis on Marginal Groups):

The marginal men placed in an ambiguous position and therefore they are best suited to make creative adjustments in situations of change

9. Cochoran’s Theory:

The cultural values of a society, social expectations and role expectations play an important role in determining the supply of entrepreneurs.

Factors having a profound influence on the performance of the entrepreneurs:

First, the attitude of a person towards his/her own occupation;

Second, the role expectations conceived and expected by the sanctioning group; and

Third, the operational requirements of the concerned job.

10. E. E. Hagen’s Theory (Emphasis on Withdrawal of Status Respect):

The withdrawal of status respect of a group is the starting point for entrepreneurship development process.

The creativity of the entrepreneur brings about social transformation and economic development.

Four possible reactions to the withdrawal of status respect which relates to four different personality types:

(i)The retreatist – An individual who works in the society but is indifferent to the work and position.

(ii)The ritualist – An individual who works in the manner accepted and approved by the society but has no hopes of improving his/her position.

(iii)The reformist – An individual who fights against the injustice and tries to rebels against the established society in order to form a new society.

(iv)The innovator – An individual who endeavours to bring about new changes and utilizes all opportunities. This personality reflects the personality of an entrepreneur.

11. Leibenstein’s Theory (Emphasis on XEfficiency):

X-inefficiency refers to the difference between the optimal efficient behaviour of business in theory and the observed behaviour is practice which occurs owing to different factors

The entrepreneur has been entrusted two roles:

• Gap filler

• Input completer

Leibenstein’s two types of entrepreneurship:

1. Routine entrepreneurship

2. New entrepreneurship

12. M. Kirzrier’s View on Entrepreneurship:

The basis of Kirzner’s idea of entrepreneurship is spontaneous learning.

13. Baumol’s View on Entrepreneurship:

Entrepreneurship is essentially about the re-combination of resources.

14. Peter Drucker’s View on Entrepreneurship:

He defines an entrepreneur as one who always searches for change, responds to it and exploits it as an opportunity. Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or service.