Investment in Entrepreneurial Ability

Abstract

Entrepreneurship is a pervasive activity in a dynamic economy. A wide array of people at various points over the life cycle are entrepreneurs, not only bureaucrats and farmers but also laborers, students, housewives and consumers are entrepreneurs. Entrepreneurial returns are a significant source of income in a dynamic economy. The economic value of the entrepreneurial ability that is acquired by education can be identified and measured. Whereas conceptually every entrepreneurial action entails some risk, risk is not a unique attribute of a dynamic economy. The idea that the economic value of what entrepreneurs do is to be equated as a return for risk bearing, is rejected. This investment approach to entrepreneurial ability implies that the returns that actually occur to education are substantially undervalued. In large measure economic theory either omits the entrepreneur or it burdens him with esoteric niceties the implications of which are rarely observable. The entrepreneur is not required in equilibrium theory in solving the problems for which that theory is appropriate. In nearly all of the production function literature, the entrepreneur does not appear as an explicit economic agent. In the part of theory that deals with pure profit, the entrepreneur is indentured to risk and uncertainty. The argument of this paper is that the abilities of entrepreneurs to deal with the disequilibria that are pervasive in a dynamic economy are a part of the stock of human capital. It is well documented that experience, health and especially schooling enhance the acquired abilities of entrepreneurs. Most of the relevant studies pertain to the effects of schooling of farmers on their ability to perceive and to interpret new information and to decide to reallocate their resources to take advantage of new and better opportunities. In this human capital approach, schooling is treated as an investment. Thus the argument of this paper features investment in entrepreneurial ability. Entrepreneurs have not received their due in economics; they are not given adequate credit for the contributions they make in a dynamic economy. It is