Alertness and the Metaphor of Allocative Choice
Whenever one talks about an allocation, one tends to think of standardized factors of production with well-defined units. The production decision regarding the factors is then a technological problem that Kirzner ([1973] 1978) somewhat pejoratively calls Robbinsian maximizing because it is mechanical and therefore does not encapsulate the discovery aspect of the market process.
Talking about the allocation of entrepreneurship and entrepreneurial alertness, as I do, thus raises red flags, particularly if one at the same time claims to be building on Kirzner's insights. These concerns become even more pressing with the realization that Kirzner [1973] 1978, 66) does not view entrepreneurship as a factor of production. After all, entrepreneurship is not an ingredient that one simply adds to a well-defined production function to get predictable output levels. It might be for this reason that there is no market for entrepreneurial alertness, while, at the same time, markets work because of the alertness.To reconcile my representation of entrepreneurship with Kirzner's, I follow the approach outlined by Storr and John (2011), who consider Kirzner's model of entrepreneurship in light of the objection that it does not account for a number of important factors possibly impacting entrepreneurship, including cultural and psychological factors. Storr and John (Storr and John 2011, 88-89) argue that one does not necessarily have to view Kirzner's model as deficient; instead, it should be viewed as a baseline model pinpointing the nature of entrepreneurship, which invites additional extensions, such as cultural influences.
My own extension starts with the consideration that it would be unreasonable to say that entrepreneurial alertness manifests at random and that entrepreneurs have no say over the industries and types of products on which they want to focus. As long as we accept that people have some freedom to choose, it is reasonable to say that they choose, even though not entirely, what to think about.
This is not just a philosophical insight, but also practical one: if our attention is limited, being able to focus on priorities is a matter of evolutionary survival.Of course, as long as the matter of limited attention is not important for an analytic framework, it is reasonable to assume it away. Such assuming is not appropriate in the present case, however. The attention of entrepreneurs during a recession might get overwhelmed with competing demands, forcing them to choose what to pay attention to. It is the need to capture such a choice that constitutes my rationale for looking at entrepreneurial alertness as if it was a factor of production.
This emphasis on the incentives of entrepreneurs is very much in line with Baumol's (1968, 69-70) view on how economists should approach the topic of entrepreneurship. He points out that it is perhaps impossible to have a full understanding of the determinants of the supply of entrepreneurship and its quality, but it might be possible to analyze the incentives shaping entrepreneurs’ activity. For example, he suggests that different tax structures might have an effect on entrepreneurs’ risk-taking and their involvement with research and development.
The metaphor of allocation of alertness can take one only so far, however. It does convey both the limits to alertness and the profit- motivated choice over what one is alert to, but it cannot capture all aspects of entrepreneurship, notably acting in an uncertain world. It is with this caveat that I approach the discussion that follows.