2017

The Entrepreneurial Rent: The Value of and Compensation for Entrepreneurship

Reprint No. 2017:16

Author(s): Magnus Henrekson and Mikael StenkulaYear: 2017 Title: Journal of Entrepreneurship and Public Policy Volume (No.): 6 (1) Pages: 11–25
Online article (restrictions may apply)
Preliminary version


Purpose – The purpose of this paper is to show that entrepreneurship can be fruitfully analyzed by positing that entrepreneurs are searching for rates of return exceeding the risk-adjusted market rate of return, i.e., they try to create or discover economic rents.

Design/methodology/approach – A conceptual paper trying to bridge the gap between neoclassical economics and the entrepreneurship field by seeing entrepreneurship as the search for and creation of (entrepreneurial) rents.

Findings – In the short to medium term the search for and creation of entrepreneurial rents give rise to supernormal profits if successful. In the longer term these rents are dissipated and accrue to society at large as cheaper and better products. Entrepreneurial rents are crucial for bringing about the innovation and continuous structural change required to generate economic growth.

Practical implications – The search for entrepreneurial rents is crucial for economic development. Without the possibility to earn entrepreneurial rents, no entrepreneur would be willing to exercise entrepreneurship and exploit entrepreneurial opportunities. Successful entrepreneurship attracts imitating firms that push back profits to normal levels and the benefits of the innovation will be diffused to consumers.

Social implications – Understanding the role of entrepreneurship and its compensation is crucial for analyses of potential policy measures. High ex post compensation for successful entrepreneurship cannot be taxed harshly without affecting entrepreneurs’ willingness to supply effort.

Originality/value – The entrepreneurial function and its compensation are often neglected in neoclassical economics. This is a major shortcoming, as the presence of and search for entrepreneurial rents are necessary for bringing about the innovation and structural change that result in economic growth.


Reference:
Henrekson, Magnus and Mikael Stenkula (2017), "The Entrepreneurial Rent: The Value of and Compensation for Entrepreneurship". Journal of Entrepreneurship and Public Policy 6(1), 11–25.

Magnus Henrekson

Contact

Ph: +46 (0)8 665 4502
magnus.henrekson@ifn.se

Mikael Stenkula

Contact

Ph: +46 8 665 4530
Mob: +46 73 844 18 78
mikael.stenkula@ifn.se

An Agenda for Europe

Institutional Reform for Innovation and Entrepreneurship

Omslag 2017 Institutional Reform for Innovation and Entrepreneurship.jpg

The authors of this book, Niklas Elert, Magnus Henrekson and Mikael Stenkula, advise the economies of the European Union to become more entrepreneurial in promoting innovation and economic growth. The authors propose a reform strategy with respect to several aspects to achieve this goal.

Events

Seminars organized by IFN

 

To present ongoing research informal brown-bag seminars are held on Mondays at 11:30 am. This is an opportunity for IFN researchers to test ideas and results.

Academically oriented seminars are most of the time held on Wednesdays at 10 am. At these events researchers from IFN and other institutions present their research.

In addition, IFN organizes seminars open to the public. Topics for these are derived from the IFN research.

Research Institute of Industrial Economics, Grevgatan 34 - 2 fl, Box 55665, SE-102 15 Stockholm, Sweden | Phone: +46-(0)8-665 45 00 | info@ifn.se