Schumpeterian rents are earned by innovators and occur during the period of time between the introduction of an
innovation
Innovation is the practical implementation of ideas that result in the introduction of new goods or services or improvement in offering goods or services. ISO TC 279 in the standard ISO 56000:2020 defines innovation as "a new or changed entity ...
and its successful
diffusion
Diffusion is the net movement of anything (for example, atoms, ions, molecules, energy) generally from a region of higher concentration to a region of lower concentration. Diffusion is driven by a gradient in Gibbs free energy or chemical p ...
. It is expected that successful innovations, in time, will be imitated, but until that occurs, the innovator will earn Schumpeterian rents. They were named after economist
Joseph Schumpeter
Joseph Alois Schumpeter (; February 8, 1883 – January 8, 1950) was an Austrian-born political economist. He served briefly as Finance Minister of German-Austria in 1919. In 1932, he emigrated to the United States to become a professor at Ha ...
, who saw profits made by businesses as resulting from the development of new processes which disturb economic equilibrium, temporarily raising revenues above their resource costs. This type of profit is also called ''entrepreneurial rent''.
Schumpeterian rent is seen as a form of
economic rent
In economics, economic rent is any payment (in the context of a market transaction) to the owner of a factor of production in excess of the cost needed to bring that factor into production. In classical economics, economic rent is any payment m ...
, although Schumpeterian rent may be seen as an incentive towards greater economic efficiency.
Karl Marx
In
Marxian economics
Marxian economics, or the Marxian school of economics, is a Heterodox economics, heterodox school of political economic thought. Its foundations can be traced back to Karl Marx, Karl Marx's Critique of political economy#Marx's critique of politic ...
, the equivalent to Schumpeterian rent is the ''extra
surplus value
In Marxian economics, surplus value is the difference between the amount raised through a sale of a product and the amount it cost to the owner of that product to manufacture it: i.e. the amount raised through sale of the product minus the cost ...
'' that is extracted from the laborer during the rise of ''local productivity'', meaning the development of the
productive forces
Productive forces, productive powers, or forces of production (German: ''Produktivkräfte'') is a central idea in Marxism and historical materialism.
In Karl Marx and Friedrich Engels' own critique of political economy, it refers to the combinat ...
through innovation owned by the respective capitalist, while all other enterprises are left with yet undeveloped productive forces. The result is the rise of the local
rate of profit
In economics and finance, the profit rate is the relative profitability of an investment project, a capitalist enterprise or a whole capitalist economy. It is similar to the concept of rate of return on investment.
Historical cost ''vs.'' market ...
, as the respective commodity is now produced cheaper by this enterprise alone, yet can still be sold for its general market price. In Marxian theory, the earning of extra surplus value is what drives and guides the capitalist, and thus capitalism itself.
The value of the entrepreneurial rent and compensation for entrepreneurship
Magnus Henrekson Magnus Henrekson, born 1958, is a professor of economics and between 2005 and 2020 he was president of the Research Institute of Industrial Economics (IFN) in Stockholm, Sweden. Between 2001 and 2009 he was Jacob Wallenberg Professor of Economics ...
, professor of economics and president of the
Research Institute of Industrial Economics (IFN) in
Stockholm
Stockholm () is the Capital city, capital and List of urban areas in Sweden by population, largest city of Sweden as well as the List of urban areas in the Nordic countries, largest urban area in Scandinavia. Approximately 980,000 people liv ...
, wrote a paper about the value of entrepreneurial rent in 2017. He wanted to show that
entrepreneurship
Entrepreneurship is the creation or extraction of economic value. With this definition, entrepreneurship is viewed as change, generally entailing risk beyond what is normally encountered in starting a business, which may include other values th ...
can be thoroughly analyzed by positing that entrepreneurs are searching for rates of return exceeding the risk-adjusted market rate of return. His main findings were that searching for and creating entrepreneurial rents gives rise to supernormal profits in short to medium term. But In the longer term, these rents are growing to society as cheaper and better products.
The entrepreneurial rent: the value of and compensation for entrepreneurship
Marcus, Henrekson (10 April 2017) Entrepreneurial rents are crucial for innovation and development, which play the leading role in generating economic growth
Economic growth can be defined as the increase or improvement in the inflation-adjusted market value of the goods and services produced by an economy in a financial year. Statisticians conventionally measure such growth as the percent rate of ...
.
See also
* Creative destruction
Creative destruction (German: ''schöpferische Zerstörung'') is a concept in economics which since the 1950s is the most readily identified with the Austrian-born economist Joseph Schumpeter who derived it from the work of Karl Marx and pop ...
References
Innovation
Joseph Schumpeter
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