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Theories of Entrepreneurship

• Sociological Theories

• Economic Theories

• Cultural Theories

• Psychological Theories
Sociological Theories
The following theories explain how sociological factors
accelerate the growth of entrepreneurship:

• Theory of religious belief-Weber

• Theory of Entrepreneurial Supply-Cochran

• Theory of Social Change-Hagen

• Theory of Group Level Pattern-Young

Theory of religious belief - Max Weber

• Spirit of Capitalism- Economic Freedom & Private Enterprise are Glorified

• Adventurous spirit- Affected by free force of impulse

• Protestant Ethic- If something is not right/ prevalent in present context,

leave it.

• Inducement of Profit- Motive of Profit guide this

Theory of Entrepreneurial Supply- Thomas Cochran
• Emphasize on cultural values, role expectations and social sanctions

• Entrepreneur is a Role Model

• Model Personality of an Entrepreneur is a derivative of social conditioning

of his generations. Type of childrearing and schooling, has influence on

intrinsic character of the Executive.

• There are well defined role expectations of an Entrepreneur.

Theory of Entrepreneurial Supply- Thomas Cochran
• The model of the dynamics of the Entrepreneurs gives thrust on the social

factors for the major changes.

• It is based on American Economic History of 19th century.

• Quick adoption of mechanical devices

• Growth of Professional Management in the Corporate Sector.

• Widespread application of mass production techniques.

Theory of Entrepreneurial Supply- Thomas Cochran

The Performance of the entrepreneur is governed by-

• Attitude towards his own occupation

• The role expectations by the sanctioning groups.

• The operational requirement of the jobs

Theory of Social Change- E. E. Hagen

How a society move towards technical progress ?

• Interrelationship among physical environment, social structure, personality and culture.

• Entrepreneur is a creative problem shooter, who brings about economic development; mingled

with political & social changes.

• Imitating Western technology is not the solution to economic development

• The historic shift caused some group of lesser elite class from different caste and communities

in bringing progress.
Theory of Social Change- E. E. Hagen
• Withdrawal of Status respect- The role of Lesser Samurai in Japan is

example of status withdrawal. When withdrawal of status respect occurs, it leads to

four different responses and creation of four different personality types:

Retreatist Ritualist Reformist

Constantly works Who adopts a kind Innovator
Initiates rebellion
in society but of defensive Creative
and attempts to
remains indifferent personality and acts individual who
in a way accepted &
establish a new
to his position converts all odds
approved in society order in the
into opportunities.
without any hope of society
improving opposition
Theory of Group Level Pattern- Frank Young

Entrepreneurial initiative is a function of group level pattern. This theory suggested a causal

sequence where transformation codes are developed.

• Deficiencies are identified to explain the emergence of new kind of organization.

• Solidarity groups are the main agencies for building entrepreneurship.

• He maintains the entrepreneurial characteristics are found in clusters, ethnic communities,

occupational groups and politically oriented factions.

Theory of Group Level Pattern- Frank Young
• Young disregards the claim that entrepreneur works single handedly or


• Entrepreneurial activity is the product of family background, experience and

exposure of an individual as a member of a group.

• The solidarity of the groups reduces a number of economic problems.

Theory of Group Level Pattern- Frank Young

Young calculated a Thematic Apperception Test (TAT) on a group of entrepreneurs

with the following findings-

• The test revealed the tendency to depict the situation as a problem to be solved.

• An awareness of pragmatic effort required.

• Confidence on their ability to solve the problems.

• Willingness to take the views of each individual in turn and analyze the situation as

he percieves before suggesting any outcome.

Theory of Group Level Pattern- Frank Young

Young incorporated the idea of reactive subgroups which plays an important role in

enterprise creation. An entrepreneurial group becomes reactive when:

• Low status recognition is found in a group.

• Access to important social network is denied.

• The group has better institutional resources than other group in the society at the

same level.
• Schumpeter’s Theory of Innovation
• Leibenstein’s Theory of X-efficiency
• Mark Casson’s Theory
• Papanek and Haris’ Theory
• Harvard School Theory
• M. Kirzner’s Theory
• David McClelland’s Theory of Achievement
• Knight’s Theory of Profit
• Hayek’s Theory of Market Equilibrium
• Schumpeter’s Theory of Innovation

New Source
Introduction of New method The New
New Market of Supply of
New Goods of Production Organization
Raw Material
Leibenstein’s Theory of X-efficiency
(Harvey Leibenstein)

Routine New
Twin Roles of X-efficiency
Entrepreneurs Entrepreneurs
Entrepreneur Factor
hip hip

Types of
Entrepreneurship Degree of
inefficiency in the
use of inputs
within the Firm
Mark Casson’s Theory
He was a renowned Economist, propagated a functional definition of an
Demand & Supply Relationship Identification of some
Demand of Entrepreneurial ship
1 stems from the need to adjust to 2 An Entrepreneur is a person
change who specialize in taking
judgmental decisions about
Supply is limited by the scarcity of the the coordination of scarce
desired personal qualities
Papanek and Haris’ Theory
“ When certain economic conditions are favorable,
entrepreneurship and economic growth will take place.”
Economic incentives Economic Development= f(EI)

Link between economic gains and the

Economic gains + Inner-urge= ED

Economic gain-sufficient condition Economic gain is the sufficient

condition for Entrepreneurial initiative
Harvard School Theory
“ Entrepreneurship involves any deliberate activities that initiates, maintains and grows a profit
oriented enterprise for Production or distribution of Services or Goods”

Internal Forces Intelligence, Skill, Knowledge etc

External Forces Economic, Political, Social & Cultural

Entrepreneurial functions
Emphasis on two type of
Entrepreneurial activities The responsiveness to the
environmental conditions