Theories of Entrepreneurship

Theories of Entrepreneurship

There are various theories of entrepreneurship. The important entrepreneurship theories are as follows:

Economic Theory of Entrepreneurship

According to this theory an entrepreneur acts due to economic incentives. The driving force of an entrepreneur is his desire for economic gains. As such entrepreneurs emerge due to incentives and economic gain. When an entrepreneur realizes that he can make gains by purchasing or producing goods at low prices and by selling them at higher prices, he will tend to act. In essence he is a seeker of profitable opportunities. A typical entrepreneur according to Kirzner is the arbitrator, the person who discovers opportunities at low prices and sells the same at high prices because of intertemporal, and interspatial demands.

The main supporters of this theory are: GF. Papanch and J.R. Harris, According to them, “Economic incentives are the prime motivator. Economic incentives and profit are the driving force and is a sufficient condition of origin of entrepreneurship.

Sociological Theory of Entrepreneurship

It is also called theory of social change. It was advocated by Everett Hagen. He gives a psychological explanation for the emergence of an entrepreneur as a high achiever and a creative problem solver. According to him the driving force in an entrepreneur is the withdrawal of status or respect i.e. social change. When a person feels that his status or respect has been withdrawn, he feels hurt and reacts to regain his lost status or respect by creatively solving the problems of his social group. This feeling of deprivation and will to regain drives him to entrepreneurial activities. Hagen considers withdrawal of status in the following cases :

  1. Displacement of traditional group by another group.
  2. Denigration of valued symbols.
  3. Inconsistency of status symbols with a changing distribution of economic power.
  4. Non-acceptance of expected status or migration to a new society.

The main protagonists of this theory are:

  1. Everett Hagen’s Theory:

    According to him the primary is employed by reason for the development of entrepreneurship is the role played by groups and castes.

  2. Frank W. Young’s Theory:

    According to him, expansion of entrepreneurial activities is not possible through individuals but through groups of entrepreneurs.

  3. Thomas Cochran:

    According to the theory of Thomas Cochron, cultural values, role, expectations, social approval play an important role in the development of entrepreneurship.

  4. Max Weber Peter’s Theory:

    According to Weber, “Religious belief in the occupation of the entrepreneur plays a pivotal role.” He has linked protestant and other religions with the development of entrepreneurship.

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