Research Summary We reexamine and explore the modern view of inequality against entrepreneurial market process theories, which leads us to three key assertions. First, we question the validity of income inequality as a proxy for true inequality (i.e., inequality of individual well‐being), observing nonlinearity between the two constructs. Second, we explore the entrepreneurial microfoundations of growing and shrinking inequality in market societies, arguing that individual inequality is primarily the outcome of abnormal gains from disequilibrating creative destructive processes. These shifts are temporary, however, as equilibrating (arbitraging) entrepreneurship competes away monopoly profits. Growing inequality trends, then, are seen primarily as the result of increasingly large, but also shorter, waves of creative destruction. Finally, we reconsider the issue of the injustice of inequality through this market process lens. Managerial summary We contribute three arguments to the debate over economic inequality. We are (or ought to be) concerned over differences in individual well‐being, not income. Studies of income inequality can be misleading. We argue that a key and so far overlooked source of economic inequality is entrepreneurship. Disruptive entrepreneurship (via innovation) redistributes economic resources away from the present industry, reallocating them in a more unequal redistribution, with the successful disruptor capturing an unequal share of resources. Imitative entrepreneurship, however, tends to mitigate this inequality, competing away abnormal profits while expanding new products’ diffusion among consumers. Finally, we observe that economic inequality may not be as unjust as previously thought, and we caution against corrective policy that might inhibit entrepreneurship.
Purpose – The purpose of this paper is to investigate effects of policy initiatives on entrepreneurs’ opportunity evaluation decisions. Design/methodology/approach – Factors were selected from real world policy initiatives. The model pricing power as a traditional economic base rate attribute and then considering how variance in use fees and reporting requirements changes the base rate relationship. The factors served as decision attributes in a conjoint analysis experiment. A total of 126 entrepreneurs made 2,268 opportunity evaluation decisions. Findings – While increases in pricing power result in a positive upward base rate opportunity evaluation, government mandated use fees and reporting requirements diminish the base rate toward the negative. This suggest that that even though the likely profits are much higher with the significant pricing power opportunity, entrepreneurs heavily discount these opportunities because they view the combination of economic costs of paying high use fees and the non-pecuniary costs of reporting requirements as unappealing. Further, the authors find entrepreneurs’ disproportionately discount higher margin opportunities when the regulatory burden is higher revealing the importance of policy factors in new product introduction decisions. Practical implications – Policy has traditionally focussed on the macro-level effects of initiatives and how they directly affect issues like economic growth. This study reveals that this is only part of the equation because changes in government policy impact entrepreneurs’ opportunity evaluation decisions that underpin macro trends. In order to be effective, policy makers need to pay greater attention to not only the economic, but also the non-pecuniary costs that policy changes evoke. This is especially true for those policies like reporting requirements that may be perceived as threats to entrepreneurs’ sense of autonomy. Originality/value – This research brings to the foreground the relationship between the policy environment and the cognitions and decision of individual entrepreneurs whose collective actions move the economy. The net effect is new insight regarding how policy factors coalesce to influence entrepreneurs’ assessments of opportunities, often in ways that negatively affect these assessments beyond what simple economic calculations would suggest.
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