The Nonmarket Discovery Process

To clarify the theoretical gap I address and to delineate the boundary conditions of this chapter, I present a simple taxonomy outlining four

“contexts of human action.” Human actors may operate in a context char­acterized by Market or Nonmarket features, and they may operate under Risk or Uncertainty.

Scholars in and around the tradition of “mainline” economics (Boettke 2012) tend to pay explicit attention to the context within which human action occurs. As a result, my taxonomy features two core dimensions of the action context, which I label the Exchange Context and Deci­sion Context. The Exchange Context of human action is the set of institutions, the formal and informal “rules of the game,” within which individuals act (North 1990). Exchange Context may be either Market or Nonmarket. Market context is characterized by money prices, profit and loss feedbacks, and well-defined property rights. Nonmarket context may include a variety of political and social spheres of interaction that vary in substance. Crucially, the nonmarket context always lacks one or more of the aforementioned market institutions (see Boettke and Coyne 2009).

The Decision Context of human action relates to whether actors face conditions of risk or uncertainty in the set of possible outcomes of their actions. I conceptualize the risk-uncertainty dimension as a feature of the environment rather than depending on the decision maker: actors face risk or uncertainty as they seek to achieve their ends. Decision Context is thus an environmental feature that profoundly influences the

Table 5.1 The context of human action

researcher's model of individual choice.

The context that the human actor finds herself in may be characterized along these dimensions into four groups: Market-Risk (MR), Market­Uncertainty (MU), Nonmarket-Risk (NR), and Nonmarket-Uncertainty (NU). This framework thus is broadly descriptive of extant research. Much of the scholarship in mainline economics can be located within the taxonomy fairly intuitively.

MR is the terrain of the neoclassical, rational choice framework commonly associated with the Chicago School. Actors face calculable risk under well-defined market institutions, and so they are modeled as “rational maximizers” who optimize choices by equating the marginal costs and marginal benefits of additional action. The result is that human actors tend to exhaust gains from trade, resulting in a state of equilibrium.

MU is the predominant context characterizing the Austrian research agenda. Purposeful market actors pursuing their ends under conditions of uncertainty (or “sheer ignorance”) is at the core of the entrepreneurial discovery process pioneered by Mises, Hayek, and Kirzner. A key point of departure relative to the Chicago-esque, MR framework is the uncer­tainty of the Decision Context—resulting largely from the dispersed, tacit nature of knowledge in society. Note that there are other unique features of the Austrian school (e.g., time, capital theory, etc.) that emerge indi­rectly in the present taxonomy: one may plausibly conceive of “dynamic” time or heterogeneous, multi-specific capital as “sources” of uncertainty. Interested readers may consult the rich debate among these MR and MU perspectives (Becker 1963; Boettke 1997; Kirzner 1962, 1963).

Moving to the nonmarket dimension, NR scholarship focuses on the economizing actions of rational choosers outside of Market Institutions. Despite lacking price signals, choosers still face risk, yielding a “closed” choice set with calculable tradeoffs. The result is that these actors respond to those tradeoffs by maximizing utility, yielding coordination in the form of states of “Shadow Equilibrium.” This work follows in large part from the pioneering efforts of Becker (1968) and Tullock (1967) and has recently enjoyed a revival in disparate but exciting areas such as the economics of superstition, religion, and the family (Leeson 2012b; Leeson et al. 2014; Leeson and Coyne 2012; Leeson and Suarez 2017).

The present chapter focuses on the final category: the NU context. Whereas the entrepreneurial discovery process (MU context) has an extremely solid theoretical foundation, research into the nonmarket discovery process (NU context) appears to be much more fragmented. To see this, consider a representative definition of one form of action in the NU context, “political entrepreneurship”: “political entrepreneur­ship is alertness to unnoticed opportunities to achieve desired polit­ical outcomes” (Simmons et al. 2011, 370). Note that this defini­tion references the Kirznerian notion of “alertness to opportunities.” But Kirzner typically refers to alertness in the recognition of profit opportunities, which requires the presence of profit and loss signals. Without the institutions that facilitate profit and loss identification (i.e., economic calculation), how can opportunities be assessed? “Alertness” and “opportunities” may well be theoretically sound constructs beyond the entrepreneurial discovery process (the MU context); however, this has yet to be established. I elaborate on this and other issues below.

Importantly, this taxonomy and the rest of the paper builds on the standard Austrian assumption of methodological individualism: the indi­vidual is the choosing entity (Boettke and Coyne 2005). In this view, human choosers are purposive and, in this sense, self-interested; however, we need not assume the content or nature of their objectives here (i.e., actors need not comport with the strict version of homo economicus). The result is the study of individual choosers pursuing their ends in a variety of external environments. I take the position of analytical egalitar­ianism regarding human actors: the “same players” are acting in each of the four contexts (Koppl 2012; Peart and Levy 2009).

In the next section, I discuss extant research in the NU framework, dealing with the nonmarket discover y process. This review reveals the many related definitions and foci of nonmarket entrepreneurship research, and it suggests that many questions remain regarding both the nature and consequences of human action in this context.