If a certain profit is certain, more would invest and drive prices up and returns down
a)
Making money in companies reasonably certain to be profitable? No.
b)
Buy Microsoft or Google before it is generally known or reliable.
c)
Predictability makes the investment a bond or CD
IV.
Entrepreneurship - the active & creative side of profit-making
A.
They reorganize things
B.
They are Undertakers
C.
They are the core of an "enterprise" or "commercial" society
D.
Entrepreneurs as "residual claimants"
1.
They get to be the boss - make the decisions and set the course (disagreements are a part of life)
2.
Employees are paid for their cooperation
3.
The residual claimant sets the rules
4.
Makes decisions based on all the costs and all the benefits
5.
Residual claimants have an incentive to make exceptions and to shorten lines in the store - others don't
V.
Institutions Without Residual Claimants
A.
No one has the incentive to shorten the lines - fire the teachers, schedule the classes people want to take, avoid lawsuits.
B.
Who has the authority and incentive to stop departments from spending the last drop of their budgets. This money that is wasted could be used for some other valuable thing in the organization.
VI.
The Roles of Entrepreneurs in Markets
A.
Arbitrage
1.
Intended consequences - make profit
2.
Unintended consequences
a)
Correct market errors (differences in prices
(1)
These price differences provide incorrect scarcity signals
(2)
Entrepreneurs take an item from a lower valued area to an area where it is more highly valued - wealth creating for the society (as well as for the ent)
b)
Contribute to the coordination process
B.
Innovation
1.
Examples:
a)
New technologies
b)
New organization strategies
c)
New efficiencies
d)
Indian territories in the wild wild west
C.
Imitation
1.
Diffusing new technologies - Henry Ford; Apple PCs
D.
Markets Create Information
1.
People freely exchange their property rights
E.
Market systems give control of the resources to people who can husband them most effectively
F.
Entrepreneurs change society.
VII.
Restrictions on Competition
A.
Who benefits?
1.
Those who obtain the restriction benefit. They own an asset that will earn more money - it is now worth more.
2.
Subsequent buyers will have to pay the higher price. The return on the higher priced assed will be a lower %.
B.
Political Entrepreneurship
1.
If government preferences exist for corn, land suitable for corn-growing will increase in value.
2.
competition for the right to a "secure" profit is costly
3.
Competition for cable rights
C.
"Profits and losses arise from uncertainty and cannot exist in the absence of uncertainty."
D.
"Competiton to obtain the profit will eliminate it, either by reducing revenue or by raising cost."
E.
The effects of entrepreneurship "will depend on the rules of the game and the system of property rights that are created."
I. 