An Examination of the Entrepreneurial Effort

Abstract

This paper examines the economic effects of entrepreneurial effort. It challenges the neoclassical doctrine of representative agent's utility maximization problem and suggests a return to the classical economic theory of the entrepreneur in the tradition of Max Weber and Joseph Schumpeter. From this classical tradition and the data evidence, the entrepreneurial effort is found to be the intrinsic character of the entrepreneur. This paper divides the human effort into subsistence production and entrepreneurial production. When the representative entrepreneur is assumed to take pleasure in making entrepreneurial efforts, the utility maximization requires a higher productivity of subsistence production than that of entrepreneurial production. The paper also develops a two-period and two-goods dynamic model that allows the inclusion of an initial capital to this representative entrepreneur's utility maximization problem. The model predicts that an additional unit of initial capital generates a substitution effect on the first period, but a complementary effect on the second period entrepreneurial effort. Further, the entrepreneurial production positively associates with the initial capital.

Keywords: entrepreneurship, work ethic, utility maximization

JEL Classification: L26, M13, D9, J2