Schumpeterian rent (original) (raw)

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Concept in economics

Schumpeterian rents are earned by innovators and occur during the period of time between the introduction of an innovation and its successful diffusion. It is expected that successful innovations, in time, will be imitated, but until that occurs, the innovator will earn Schumpeterian rents. They were named after economist Joseph Schumpeter, who saw profits made by businesses as resulting from the development of new processes which disturb economic equilibrium, temporarily raising revenues above their resource costs.[1] This type of profit is also called entrepreneurial rent.[2]

Schumpeterian rent is seen as a form of economic rent, although Schumpeterian rent may be seen as an incentive towards greater economic efficiency.

In Marxian economics, the equivalent to Schumpeterian rent is the extra surplus value that is extracted from the laborer during the rise of local productivity, meaning the development of the productive forces through innovation owned by the respective capitalist, while all other enterprises are left with yet undeveloped productive forces. The result is the rise of the local rate of profit, as the respective commodity is now produced cheaper by this enterprise alone, yet can still be sold for its general market price. In Marxian theory, the earning of extra surplus value is what drives and guides the capitalist, and thus capitalism itself.[3]

The value of the entrepreneurial rent and compensation for entrepreneurship

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Magnus Henrekson, professor of economics and president of the Research Institute of Industrial Economics (IFN) in Stockholm, wrote a paper about the value of entrepreneurial rent in 2017.[4] He wanted to show that entrepreneurship can be thoroughly analyzed by positing that entrepreneurs are searching for rates of return exceeding the risk-adjusted market rate of return. His main findings were that searching for and creating entrepreneurial rents gives rise to supernormal profits in short to medium term. But In the longer term, these rents are growing to society as cheaper and better products.[5] Entrepreneurial rents are crucial for innovation and development, which play the leading role in generating economic growth.

  1. ^ Sautet, Frederic (2015), "schumpeterian rents", The Palgrave Encyclopedia of Strategic Management, Palgrave Macmillan, doi:10.1057/9781137294678.0611, ISBN 9781137294678
  2. ^ Collis, Montgomery (2005). Corporate Strategy: A Resource based Approach (Second ed.). Boston: Irwin McGraw-Hill. p. 44. ISBN 978-0-07-231286-7.
  3. ^ Marx, Capital, Part IV: Production of Relative Surplus Value, Chapter Twelve: The Concept of Relative Surplus Value
  4. ^ The entrepreneurial rent: The value of and compensation for entrepreneurship , Magnus, Henrekson (2016)
  5. ^ The entrepreneurial rent: the value of and compensation for entrepreneurship, Marcus, Henrekson (10 April 2017)