Three Views of Entrepreneurial Opportunity

Abstract

Although we are not usually explicit about it, we really postulate that when a market could be created, it would be. Kenneth Arrow (1974a) For almost 50 years now, following the trail of issues raised by economists such as Hayek, Schumpeter, Kirzner, and Arrow, researchers have studied the economics of technological change and the problem of allocation of resources for invention (invention being the production of information). The bulk of this literature simply assumes that new technical information will either be traded as a commodity or become embodied in products and services (hereafter called " economic goods "), without addressing any specific mechanisms or processes for the transformation of new information into new economic goods or new economic entities (such as new firms and new markets). It is inside this gap that we begin our quest for the concept of an " entrepreneurial opportunity. " In a recent interview with CNN, Whitfield Diffy, the inventor of public key encryption (currently an employee of Sun Microsystems), explained that although his entire subsequent career had benefited from his invention and he had done very well financially in the process, it did not occur to him to start a company to commercialize his invention. In fact he expressed astonishment at the " hun-dreds and hundreds of people trying to turn a buck on it. " The designers of the MIR space station would no doubt express similar astonishment at the venture capitalists that recently bid (in vain) several million dollars to turn it into an adver-tising/tourist resort – just as the scientists working with DARPA did not foresee the age of e-commerce. The history of technological invention is full of unantici-pated economic consequences. And, yet, the study of the economics of technological change is full of " just-so " stories 1 that seemingly demonstrate the inevitability of 1 Just so stories (based on Rudyard Kipling's (1909) collection of short stories of the same title) are stories that explain why things are the way they are. Such stories also tend to celebrate things, C Springer Science+Business Media, LLC 2010 78 S.D. Sarasvathy et al. commercialization of all new technologies through familiar recurring patterns such as the technology adoption curve. Unfortunately, of course, we do not have any data on all the new products and markets that were not created to commercialize new technologies in the past. This chapter challenges the assumption underlying current theories of techno-logical change, laid out so pithily by Arrow in the initial quote, viz., " when a market could be created, it would be. " Instead, it focuses on Arrow's exhortation to researchers to tackle one of the central problems in economics today: " . . . the uncertainties about economics are rooted in our need for a better understanding of the economics of uncertainty; our lack of economic knowledge is, in good part, our difficulty in modeling the ignorance of the economic agent. " The central premise of this chapter is that there exists an important area for research in the conceptual gap between a technological innovation and the markets that come into existence based on that innovation—a gap in our understanding of economics that is filled by the notion of " entrepreneurial opportunity. " In this chapter, we outline some initial steps in the study of entrepreneurial opportunity by summarizing how existing lit-erature instructs us to proceed and then making a conjectural leap toward grappling with the complexities inherent in this phenomenon. We begin our exposition with a definition of entrepreneurial opportunity. Then we delineate its elements and examine it within three views of the market process: i.e., the market as an allocative process; as a discovery process; and as a creative pro-cess (Buchanan & Vanberg, 1991). Within each stream, we examine the assumptions about the knowledge (ignorance) of the decision-maker with regard to the future, and the implications of those assumptions for strategies to recognize, discover, and create entrepreneurial opportunities. We end the essay with a set of conjectures that challenge the inevitability of technology commercialization and argue for a more contingent approach to the study of the central phenomena of entrepreneurship.