Theories of entrepreneurship: Innovation theory by Schumpter, Theory of Achievement by McClelland, X-efficiency theory by Leibenstein, Theory of profit by Knight
2. CONTENTS
Innovation theory by Schumpter
Theory of high achievement by McClelland
X-efficiency theory by Leibenstein
Theory of profit by Knight
3. INNOVATION THEORY BY SCHUMPTER
Joseph A. Schumpter proposed innovation theory in 1949
Emphasized innovation being the key motivator, knowledge and creativity on the secondary
Innovation may involve developing new products, new markets, new way of producing product,
new organizational culture.
Schumpter linked innovation with business cycle indicating that entrepreneurship helps in
stabilizing economic growth of the country
4. THEORY OF HIGH ACHIEVEMENT BY
McCLELLAND
David McClelland gave “Theory of needs” categorized into Theory of Achievement (nAch),
Theory of Affiliation (nAff) and Theory of Power (nPow)
Individuals having strong nAch set challenging goals and always want to emerge as winners, no
matter how much risk they have to bear
Individuals having strong nAff like to socialize and maintain good relationships without entering
into any competition
Individuals having strong nPow want high status and greater authority, making them an impactful
leader
5. X-EFFICIENCY THEORY BY LEIBENSTEIN
X-efficiency theory was proposed by Harvey Leibenstein
Measures effectiveness of firm to produce an output with a given set of inputs
Entrepreneur can measure the degree of technical efficiency of the firm which can be maintained
under imperfect competition
6. THEORY OF PROFIT BY KNIGHT
Frank H. Knight proposed theory of profit for entrepreneurs
Profit is the residual return of entrepreneur for bearing risks in business
There are two types of risks: calculable risks and non-calculable risks
Calculable risks can be estimated in advance and so they can be insured
Non-calculable risks are unseen and cannot be estimated, thus are non-insurable