Entrepreneurship in a theory of capital and finance—Illustrating the use of subjective quantification

Peter Lewin and Nicolas Cachanosky

Managerial and Decision Economics, 2020, vol. 41, issue 5, 735-743

Abstract: In order to identify an entrepreneurial opportunity, calculation is required. The entrepreneur must do more than simply perceive an opportunity to do something new to create value in the marketplace. Insofar as alternative possible actions exist, the entrepreneur must choose between them. And even as the chosen opportunity is pursued, he must choose between alternative modes of production and organization in the ongoing combination of resources. The details of the kind of calculation required have been left mostly implicit in the literature. This article borrows from the finance literature to suggest a general and universal framework for such calculation and to offer one possible more specific method for using that framework for ongoing entrepreneurial judgment calls. We describe the familiar context in which entrepreneurial decisions occur and reiterate the importance of understanding the nature of capital in such a context of subjective value, uncertainty, and entrepreneurial imagination. We describe the familiar universal present value arithmetic and how it applies to entrepreneurial calculation. Finally, we take a deeper look at this framework, providing an example of one method of analysis used in financial management.

Date: 2020
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https://doi.org/10.1002/mde.3133

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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:41:y:2020:i:5:p:735-743

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