A Simple Model of Entrepreneurship for Principles of Economics Courses

Over the last four decades since Baumol's 1968 critique, there has been some progress in incorporating entrepreneurship into principles of economics texts. However, the critical roles of entrepreneurs in creating, operating, and destroying markets are generally either absent or relegated to later chapters. The primary difficulties in explaining entrepreneurship at the principles level are the lack of a universally accepted definition, a plausible explanation of the demand for entrepreneurship, and a diagram that summarizes the impact of entrepreneurship on market equilibrium – a definition, a story, and a picture. This paper discusses how the notion of the stationary state associated with Schumpeter (1911), Knight (1921), and Weber (1930) can provide a framework for integrating the entrepreneur into the early part of principles of economics courses. In addition, the research of Romer (1990), Audretsch et al (2006), and others is used to demonstrate the critical role of entrepreneurship in explaining economic growth. The study ends with a principles level discussion of how institutions can be crafted so as to facilitate entrepreneurship