THE ENTREPRENEURIAL FUNCTION IN THE THEORY OF THE FIRM
| Author | Neil B. Niman |
| Date | 01 May 1991 |
| DOI | http://doi.org/10.1111/j.1467-9485.1991.tb00308.x |
| Published date | 01 May 1991 |
Scottish
Journal
01
Polrrrcal Economy.
Vol
38.
No
2,
May
1991
1991
Scomrh
Economic
Society
THE
ENTREPRENEURIAL FUNCTION
IN
THE
THEORY
OF
THE FIRM
NEIL
B.
NIMAN
The Whitternore School
of
Business and Economics
University
of
New Hampshire,
USA
I
INTRODUCTION
As
recent surveys by Putterman
(1986).
Milgrom and Roberts
(1988),
and
Yarbrough and Yarbrough
(1988)
indicate,
a
considerable amount of activity
is currently being directed towards the theory of the firm. This activity is
creating new foundations for some old issues previously resolved with
a
theory
of
the production function serving as theory
of
the firm. The purpose
of
this
paper is to answer the question
of
whether or not recent developments provide
us
with an opportunity for reintroducing the entrepreneurial function into the
theory
of
the firm.
In order to answer this question, we must first establish whether the
entrepreneur was ever part
of
the theory
of
the firm and why it disappeared.
Our starting point will be Alfred Marshall. In the work
of
Marshall, the essence
of
the firm is economic organization and the role
of
the businessman is split
between entrepreneurial and managerial functions. Developments in the theory
of
the
firm
following Marshall will then be discussed in order to demonstrate
how the entrepreneurial function has been removed
from
a
theory of the
firm
which evolved
to
the status
of
a ‘heuristic fiction’ (Machlup,
1967,
p.
9).
With
these changes in the theory
of
the firm, entrepreneurship has become limited
to
the creation
of
new combinations
of
factors
of
production designed to
exploit market opportunities.
The dominance
of
this narrow vision of the entrepreneurial function has to
a large extent limited the study
of
technological change to an investigation
of
product and process innovation (Freeman,
1982;
Stoneman,
1983).
However,
opportunities
for
additional profit not only reside in the development
of
a
new
product
or
a
new way
of
producing
a
particular product, but also can be found
in
terms
of
how the production
of
an existing product is organized. Thus in
addition to product and process, a third type
of
innovation can be added to
the list and has been identified by Matthews
(1986)
as institutional innovation.
Institutional innovation occurs with ‘the deliberate introduction
of
new types
of
organization
or
contract’ (Matthews
1986,
p.
909),
and provides an
Date
of
receipt
of
final manuscript:
7
June
1990.
162
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