On the relationship between inequality and entrepreneurship

Abstract

Research Summary We reexamine and explore the modern view of inequality against entrepreneurial market process theories, which leads us to three key assertions. First, we question the validity of income inequality as a proxy for true inequality (i.e., inequality of individual well‐being), observing nonlinearity between the two constructs. Second, we explore the entrepreneurial microfoundations of growing and shrinking inequality in market societies, arguing that individual inequality is primarily the outcome of abnormal gains from disequilibrating creative destructive processes. These shifts are temporary, however, as equilibrating (arbitraging) entrepreneurship competes away monopoly profits. Growing inequality trends, then, are seen primarily as the result of increasingly large, but also shorter, waves of creative destruction. Finally, we reconsider the issue of the injustice of inequality through this market process lens. Managerial summary We contribute three arguments to the debate over economic inequality. We are (or ought to be) concerned over differences in individual well‐being, not income. Studies of income inequality can be misleading. We argue that a key and so far overlooked source of economic inequality is entrepreneurship. Disruptive entrepreneurship (via innovation) redistributes economic resources away from the present industry, reallocating them in a more unequal redistribution, with the successful disruptor capturing an unequal share of resources. Imitative entrepreneurship, however, tends to mitigate this inequality, competing away abnormal profits while expanding new products’ diffusion among consumers. Finally, we observe that economic inequality may not be as unjust as previously thought, and we caution against corrective policy that might inhibit entrepreneurship.

Does income inequality sand or grease the wheels of entrepreneurial activity? International evidence

“…Is the impact of income inequality on entrepreneurship similar across nations with a low and high prevalence of entrepreneurship? This consideration also addresses inherent nonlinearities in the relation between income inequality and entrepreneurship (Packard & Bylund, 2018).…”

“…The results across Chinese provinces, again using GMM estimation over 2003–2012, show the reverse (negative) effect of income inequality on entrepreneurship (Fan, Zhang, & Liu, 2016). A part of the ambiguity in the relationship between income inequality and entrepreneurship might be due to the underlying relationship being nonlinear, as noted by Packard and Bylund (2018)).…”

Social Enterprises, Venture Philanthropy and the Alleviation of Income Inequality

“…These two results have important implications for both theory and practice. From a theoretical perspective, prior work has focused on how inequality pushes individuals into commercial entrepreneurship (Halvarsson et al 2018;Packard and Bylund 2018;Ragoubi and Harbi 2018;Sarkar et al 2018) and the extent to which nonprofits alleviate inequality (Berrone et al 2016;Kim 2015;Vigano' and Salustri 2015). The relationship between entrepreneurial activity with a social mission at its core, while adopting market-based mechanisms to solve social problems, and its ability to alleviate inequality has been overlooked by the literature so far.…”

“…Two main streams of work have looked at inequality in the management literature. On the one hand, only recently the entrepreneurship literature has focused on assessing whether and how income inequality pushes individuals in becoming commercial entrepreneurs (Halvarsson et al 2018;Packard and Bylund 2018;Ragoubi and Harbi 2018;Sarkar et al 2018). On the other hand, a recent stream of the nonprofit literature has started to look into the role and ability of non-profit organizations to eradicte income inequality (Berrone et al 2016;Kim 2015;Viganò and Salustri 2015).…”

Entrepreneurship and Income Inequality: A Dynamic Spatial Panel Data Analysis

“…Despite these two parallel economic trends, there is a lack of theoretical insights regarding the causal relationships between entrepreneurial activity and income inequality (Bapuji, 2015;Lewellyn, 2018;Lippmann, Davis, & Aldrich, 2005;Packard & Bylund, 2018;Van Praag & Versloot, 2007;Wright & Zahra, 2011). Based on the idea that the concentration of wealth in the hands of a few can affect the competitive dynamics in the industry, Lippmann et al (2005) develop theoretical propositions about this relationship and argue that inequality affects the Some recent empirical studies have explored the extent to which inequality influences entrepreneurial activity rates.…”