Entrepreneurial alertness
Sharon A. Alvarez and Jay B. Barney
Entrepreneurial alertness is the ability that some people have to recognize competitive imperfections in markets. Competitive imperfections exist in markets when information about technology, demand, or other determinants of com petition in an industry is not widely understood by those operating in that industry. The existence of competitive imperfections in markets suggests that it is possible for at least some economic actors in these markets to earn eco nomic profits. Thus, entrepreneurial alertness can be thought of as the ability of some people to recognize opportunities to earn economic profits.
However, as developed by Kirzner (1989), entrepreneurial alertness does not imply that individuals are systematically and rationally searching their environment for competitive im perfections. Rather, these individuals become aware of these competitive imperfections through their day to day activities. Indeed, they are often surprised that these imperfections exist, and that they have not been previously exploited by someone else.
Kirzner developed these perspectives about entrepreneurial alertness in connection with other theorists, including Hayek (1948) and Mises (1949), in response to traditional neoclassical theories in economics. Neoclassical theory admits the possibility that information asymmetries might exist in markets. However, this theory adopts the assumption that such asymmetries can, in principle, always be reduced by rational and costly search. That is, all information is, in principle, knowable, although it may be costly to produce. In this sense, there can be no entrepreneurial alertness – in the way this concept is defined by Kirzner – in the markets described by neoclassical theory, because there can be no ‘‘surprise’’ information in such markets.
Hayek (1948) argued that information asymmetries often persist in markets. Indeed, for Hayek, each person in a market has unique information that is costly for others in that market to obtain. Market processes have the effect of aggregating the unique information held by different individuals in a market. Market imperfections – and thus, opportunities for profit – are created when a person’s information is substantively different than the aggregate information created by the market.
Mises (1949) developed this point of view further by arguing that individuals in markets are not simply price takers – at the mercy of aggregate market forces over which they have no control. Rather, he suggested that some people – what he called entrepreneurs – engage in activities that give them influence over how a market will evolve. For Mises, entrepreneurs drive market forces, rather than just market forces driving entrepreneurial behavior.
In this context, Kirzner’s notion of entrepreneurial alertness is a logical predecessor to entrepreneurial action. Entrepreneurial action is defined as entrepreneurial discovery (see entrepreneurial discovery). Without the ability to recognize competitive imperfections, entrepreneurial activity cannot exist. And without entrepreneurial action, the arguments put forward by Hayek and Mises about how markets work have no validity.
The work of Hayek, Mises, and Kirzner are all examples of what has come to be called Austrian economics (see austrian economics). entrepreneurial alertness 63 However, while traditional Austrians abandoned all notions of equilibrium in their analysis, modern Austrians – starting with Hayek and Mises, and continuing with Kirzner – include some equilibrium notions in their analysis.
Future research questions might be concerned with issues such as the degree to which entrepreneurial alertness exists. If entrepreneurial alertness does exist, what is its nature? Is entrepreneurial alertness cognitive or is it a personality difference? Do only entrepreneurs have entrepreneurial alertness or are others characterized by this phenomenon as well? And, does entrepreneurial alertness manifest itself in other ways? If so, what are those ways? Finally, can entrepreneurial alertness be acquired or is an individual born entrepreneurially alert?
Bibliography
Hayek, F. A. von (1948). Individualism and Economic Order. London: Routledge and Kegan Paul.
Kirzner, I. M. (1989). Discovery, Capitalism, and Distributive Justice. Oxford: Blackwell.
Mises, Ludwig von (1949). Human Action. New Haven, CT: Yale University Press.
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