A. Knowledge and Comprehension
1. What is entrepreneurship?
It is a business, set up by someone who strives for more wealth/profits.
‘persons who are ingenious and creative in finding ways that add to their own wealth, power and
prestige’(Baumol).
It is unimportant whether the business contributes to society or not.
Tasks of entrepreneurship; introducing new goods/new quality consumers are not familiar with,
introducing new methods of production, opening new markets and carrying out the new organization
of an industry.
Lecturer: the entrepreneur is the person who carries out new combinations, he turns inventions into
innovations for the society.
2. What is the central hypothesis of Baumol (1990)? What role do institutions play in his
hypothesis?
The behavior of the entrepreneurs strongly depends on the rules of the game. Institutions are part of
the rules, as they prescribe what is and what isn’t socially accepted to gain profits and wealth.
In society entrepreneurs not only do good (introduce innovations), but they can also do bad (rent-
seeking/organized crime), depending on prevailing institutions, so the degree of good or bad
entrepreneurs unleash on the economy is not based on the number of entrepreneurs or their
objectives, but by the institutions that exist that shape how they allocate their entrepreneurial
resources.
3. What is creative destruction, and how does it fit in the Schumpeterian model of
entrepreneurship? Look to CORE if you need additional explanations.
Firms using old technologies will be swept away when they don’t adapt to new inventions and
technologies and do not innovate.
‘the process by which old technologies and the firms that do not adapt are swept away by the new,
because they cannot compete in the market.’
4. What is productive entrepreneurship, according to Baumol?
Productive entrepreneurship actively contributes to society, which means an entrepreneur innovates
and/or invent with the goal of easing ‘life’.
Productive entrepreneurship creates new value and fulfills the tasks of question 1.
5. Explain the principal-agent relationship, and what problems agency theory predicts in such
a set-up?
‘the risk-sharing problem as one that arises when cooperating parties have different attitudes toward
risk’ (Eisenhardt, 1989). But it goes across risk, as it applies to goals and labour as well. One of the
parties is the principal; the one that gives the tasks and controls (delegates), but doesn’t carry them
out, that does the agent (performs), who wants do to so with as little effort or time as possible.
Possible problems that arise are;
- The desires (interests or goals) of the agent and of the principal might differ from each other
- The approaches to risk of the agent and of the principal might differ from each other
- It is difficult or expensive for the principal to verify what the agent is actually doing -> the
principal cannot oversee everything, there is asymmetrical information (incomplete).
1. What is entrepreneurship?
It is a business, set up by someone who strives for more wealth/profits.
‘persons who are ingenious and creative in finding ways that add to their own wealth, power and
prestige’(Baumol).
It is unimportant whether the business contributes to society or not.
Tasks of entrepreneurship; introducing new goods/new quality consumers are not familiar with,
introducing new methods of production, opening new markets and carrying out the new organization
of an industry.
Lecturer: the entrepreneur is the person who carries out new combinations, he turns inventions into
innovations for the society.
2. What is the central hypothesis of Baumol (1990)? What role do institutions play in his
hypothesis?
The behavior of the entrepreneurs strongly depends on the rules of the game. Institutions are part of
the rules, as they prescribe what is and what isn’t socially accepted to gain profits and wealth.
In society entrepreneurs not only do good (introduce innovations), but they can also do bad (rent-
seeking/organized crime), depending on prevailing institutions, so the degree of good or bad
entrepreneurs unleash on the economy is not based on the number of entrepreneurs or their
objectives, but by the institutions that exist that shape how they allocate their entrepreneurial
resources.
3. What is creative destruction, and how does it fit in the Schumpeterian model of
entrepreneurship? Look to CORE if you need additional explanations.
Firms using old technologies will be swept away when they don’t adapt to new inventions and
technologies and do not innovate.
‘the process by which old technologies and the firms that do not adapt are swept away by the new,
because they cannot compete in the market.’
4. What is productive entrepreneurship, according to Baumol?
Productive entrepreneurship actively contributes to society, which means an entrepreneur innovates
and/or invent with the goal of easing ‘life’.
Productive entrepreneurship creates new value and fulfills the tasks of question 1.
5. Explain the principal-agent relationship, and what problems agency theory predicts in such
a set-up?
‘the risk-sharing problem as one that arises when cooperating parties have different attitudes toward
risk’ (Eisenhardt, 1989). But it goes across risk, as it applies to goals and labour as well. One of the
parties is the principal; the one that gives the tasks and controls (delegates), but doesn’t carry them
out, that does the agent (performs), who wants do to so with as little effort or time as possible.
Possible problems that arise are;
- The desires (interests or goals) of the agent and of the principal might differ from each other
- The approaches to risk of the agent and of the principal might differ from each other
- It is difficult or expensive for the principal to verify what the agent is actually doing -> the
principal cannot oversee everything, there is asymmetrical information (incomplete).
