Visions of entrepreneurship policy
| DOI | https://doi.org/10.1108/JEPP-D-18-00034 |
| Date | 04 December 2018 |
| Pages | 336-356 |
| Published date | 04 December 2018 |
| Author | David S. Lucas,Caleb S. Fuller,Ennio E. Piano,Christopher J. Coyne |
| Subject Matter | Strategy,Entrepreneurship,Business climate/policy |
Visions of
entrepreneurship policy
David S. Lucas
School of Management, Syracuse University, Syracuse, New York, USA
Caleb S. Fuller
Grove City College, Grove City, Pennsylvania, USA, and
Ennio E. Piano and Christopher J. Coyne
George Mason University, Fairfax, Virginia, USA
Abstract
Purpose –The purpose of this paper is to present and compare alternative theoretical frameworks for
understanding entrepreneurship policy: targeted interventions to increase venture creation and/or
performance. The authors contrast the Standard view of the state as a coherent entity willing and able to
rectify market failures with an Individualistic view that treats policymakers as self-interested individuals
with limited knowledge.
Design/methodology/approach –The authors draw on the perspective of “politics as exchange”to
provide a taxonomy of assumptions about knowledge and incentives of both entrepreneurship policymakers
and market participants. The authors position extant literature in relation to this taxonomy, and assess the
implications of alternative assumptions.
Findings –The rationale for entrepreneurship policy intervention is strong under the Standard view but
becomes considerably more tenuous in the Individualistic view. The authors raise several conceptual
challenges to the Standard view, highlighting inconsistencies between this view and the fundamental
elements of the entrepreneurial market process such as uncertainty, dispersed knowledge and self-interest.
Research limitations/implications –Entrepreneurship policy research is often applied; hence, the
theoretical rationale for intervention can be overlooked. The authors make the implicit assumptions of these
rationales explicit, showing how the adoption of “realistic”assumptions offers a robust toolkit to evaluate
entrepreneurship policy.
Practical implications –While the authors agree with entrepreneurship policy interventionists that an
“entrepreneurial society”is conducive to economic development, this framework suggests that targeted
efforts to promote entrepreneurship may be inconsistent with that goal.
Originality/value –The Individualistic view draws on the rich traditions of public choice and the
entrepreneurial market process to highlight the intended and unintended consequences of entrepreneurship policy.
Keywords Entrepreneurship, Public policy, Market failure, Market process, Public choice,
Robust political economy
Paper type Conceptual paper
Introduction
Targeted public policies to promote entrepreneurship are widespread. National and regional
governments all over the world have introduced public venture capital programs, subsidies
and other interventions aimed at fostering new venture creation and performance. US
policymakers alone have devoted billions of dollars to targeted entrepreneurship policies
over the past half-century, from the Small Business Innovation Research Program to the
Bayh-Dole Act to the more recent State Small Business Credit Initiative (SSBCI).
Unfortunately, the empirical results of entrepreneurship policy have been equivocal
(Lerner, 2009). Evaluations of public venture capital programs have been mixed (Brander
et al., 2015; Cumming and MacIntosh, 2006), and policies aimed at small business creation
often subsidize low-growth firms that add little to employment and economic development
(Shane, 2009). As Lerner (2010) notes, “[F]or every successful public intervention spurring
Journal of Entrepreneurship and
Public Policy
Vol. 7 No. 4, 2018
pp. 336-356
© Emerald PublishingLimited
2045-2101
DOI 10.1108/JEPP-D-18-00034
Received 12 July 2018
Accepted 15 August 2018
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2045-2101.htm
JEL Classification —L26, O38, B53
336
JEPP
7,4
entrepreneurial activity, there are many failed efforts, wasting untold billions in taxpayer
dollars”(p. 255).
This underwhelming track record hasinspired continued scholarlydebate on the merits of
entrepreneurship policy (Acs et al., 2016). Meanwhile, governments march on with the latest
iteration of interventions, and researchers continue downthe road of policy evaluation. In the
midst of this empirical advance, surprisingly little attention has been drawn to thetheoretical
assumptions underlying these policies. It would appear that the foundations of an
entrepreneurship policy rationale –failures in the market for entrepreneurship and
governments willing and able to correct them –are largely taken for granted.
The purpose of this paper is to make explicit the implicit theoretical assumptions that
underlie modern entrepreneurship policy. Specifically, we pr ovide a taxonomy of
assumptions about knowledge and incentives of both entrepreneurship policymakers and
market participants. We present the “Standard view”of a government entity charged with
designing and implementing entrepreneurship policy and contrast it with a proposed
alternative, the “Individualistic view,”in light of this taxonomy. The Standard view,
following the Pigouvian “public interest”tradition, treats the government as a single,
benevolent entity that aggregates the necessary knowledge of market participants to
optimally correct an undersupply of entrepreneurship. The Individualistic view, following
the tradition of public choice in treating “politics as exchange,”views policymakers as
self-interested individuals responding to institutional incentives with specialized but limited
knowledge. We show how extant literature can be positioned in relation to our taxonomy
and these perspectives. In so doing, we raise several conceptual challenges to the Standard
view, highlighting inconsistencies between this view and the fundamental elements of the
entrepreneurial market process such as uncertainty, dispersed knowledge and self-interest.
Entrepreneurship policy research is often applied; hence, the theoretical foundations of
intervention can be overlooked. We unearth the “buried presuppositions about political
theory”(Wagner, 2017, p. 42) that underlie the economic rationale for modern
entrepreneurship policy. In so doing, we critically assess these assumptions, and offer a
framework by which researchers might make sense of the dubious empirical results of
entrepreneurship policies: the rationale for intervention is strong under the Standard view
but becomes considerably more tenuous in the Individualistic view. The adoption of more
“realistic”assumptions offers a robust toolkit to identify the intended and unintended
consequences of entrepreneurship policy. Thus, we shift the terms of the debate over
entrepreneurship policy from the performance of particular programs to the conceptual
foundations that motivate such programs –urging scholars to not take the standard
rationales for granted.
In the next section, we review the market failure arguments commonly applied to
entrepreneurship in the literature. We then discuss the theoretical tradition at the
foundation of our analysis, including insights from public choice and the entrepreneurial
market process. We introduce our taxonomy of knowledge and incentives, using this to
contrast alternative theoretical frameworks for understanding entrepreneurship policy, and
discuss the implications of risk and uncertainty in the alternative frameworks. Next, we
discuss several empirical cases consistent with the Individualistic view. We then briefly
explore the ability of entrepreneurs to address the aforementioned market failures.
We conclude with implications.
Failures in the market for entrepreneurship
Given the right institutional environmental, entrepreneurship is the fundamental force
driving economic performance (Baumol, 1990; Boettke and Coyne, 2003). Motivated by the
lure of pure economic profits, entrepreneurs rearrange economic resources to what they
perceive to be more valuable and more productive uses. In so doing, they generate a process
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Visions of
entrepreneurship
policy
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