THEORIES ON

ENTREPRENEURSHIP
Lesson Goals:
1. Identify theories on
entrepreneurship.
2. Cite importance of the theories on
entrepreneurship.
3. Evaluate and choose the
theory/theories that you deem
appropriate in your prospective
business.
A theory is a
generalization that
explains set of facts or
phenomena.

It is not an absolute truth.

an idea or set of ideas that is 
intended to explain something
about life or the world, especially
an idea that has not yet been 
proved to be true.
1. Innovation Theory
2. Keynesian Theory
3. Alfred Marshall Theory
4. Risk and Uncertainty-Bearing
Theory
5. Other Theories on Entrepreneurship
Innovation Theory
Innovation – n. new idea,
device, method, or process

The Innovation Theory

regards economic
development as the product Joseph
Schumpeter,
of structural change or an Austrian economist and
political
innovation. Scientist
He wrote about this theory
in his book, The Theory
of Economic
Development.
Schumpeter argued that there will be no
development in any economic
equilibrium or status quo if there is no
revolutionary change.
Schumpeter strongly
believed that innovation is
the force that will propel
change.
 The primary roles of entrepreneurs is to
introduce innovations in any of the ff. forms:
1. New product
2. New production
method
3. New market
4. New supplier
5. New industry structure
 Keynesian Theory
This theory states that
the government has the
biggest role in
entrepreneurial and
economic development. John Maynard
Keynes,
an British economist
He wrote about this theory
in his book, The General
Theory of Employment,
Interest, and Money (1936.
Keynes strongly believed that the
government must make a strong
intervention in entrepreneurship
role played by the private sectors
by pouring more money to the
economy and creating more jobs
and projects for communities
especially during economic
depression.
It suggests that entrepreneurial
activities may not be good unless the
short term problems in the economic
equilibrium is finally resolved by the
government.
 Alfred Marshal Theory
This theory states the 4
factors in the production
of goods and services in
the economy as the
prime movers of Alfred Marshall,
an English
entrepreneurial economist
4 FACTORS OF PRODUCTION
(Marshal Theory)
1. Land
2. Labor
3. Capital
4. Organization
He wrote about this
theory in his book,
Principles of Economics.
He believed that entrepreneurs
could perform and meet
expectations if they had a
thorough understanding of the
industry.
Marshall further suggested that
an entrepreneur must be able to
foresee possible changes in the
future supply and demand
pattern.
Risk and Uncertainty-Bearing Theory
This theory states that
risk taking and bearing
uncertainty are
important dimensions
of entrepreneurship.
Frank Hyneman Knight,
an American economist
Entrepreneurs, as
agents of the
production process
must connect the
producers to the
consumers.
He wrote about this
theory in his book,
Risk, Uncertainty, and
Profit.
He believed that an
entrepreneur must
anticipate possible
random events to
happen while
shouldering the risk at
the same time.
OTHER THEORIES ON
ENTREPRENEURSHIP
 OTHER
OTHER THEORIES
THEORIES ON
ON
ENTREPRENEURSHIP
ENTREPRENEURSHIP
1. Weber’s sociological theory
2. Kaldor’s technological theory
3. Leibenstein’s gap-filling theory
4. Kirzner’s learning-alertness theory
1. Weber’s Sociological Theory

This theory stresses that

social cultures are the
primary driving
elements of
entrepreneurship. Max Weber,
a European
economist
The entrepreneur is expected to
perform the role of a good
constituent by executing his/her
entrepreneurial activities in line
with good customs, traditions,
religious beliefs, and morals.
 2. Kaldor’s Technological
Theory

This theory suggests

that modern technology
is an essential factor of
Nicholas
the production process. Kaldor
In the absence of modern
technology application in
entrepreneurship,
economic development
would be slow and
growth might not be
expected.
Proper application of
modern technology will
promote efficiency in the
production of goods and
services.
3. Leibenstein’s gap-filling
theory
This theory states that
the primary role of
entrepreneurship in any
economic activity is to Henry
fill the existing gap. Leibenstein
He believes the
entrepreneurship is
responsible for
recognizing trends in
the market.
4. Kirzner’s Learning-
Alertness Theory

This theory points out

that spontaneous
learning and alertness
are two major attributes Israel
of entrepreneurship. Kirzner
The entrepreneur
must be alert in
recognizing
entrepreneurial
opportunities.
ASSESSMENT
I. WRITE TRU IF THE STATEMENT IS CORRECT. OTHERWISE WRITE
FALSE.
1.Theories express absolute truths about events or
phenomena.
2.In Sociological theory, Weber emphasizes that the social
cultures are the primary elements of entrepreneurship.
3.The innovation theory of entrepreneurship suggests
that the economic equilibrium must be creatively
destroyed in order to have an economic development.
4. The development of Keynesian theory of
entrepreneurship was highly influenced by
the economic boom.
5. The Keynesian theory of entrepreneurship
generalizes that the government plays a
major role in the economic growth
especially when the entrepreneurs are
reluctant to invest more funds.
ASSIGNMENT:

1. Take a rest.
2. Spend time with your
family.
3. Let your weekend be an
“ACAD-FREE.” 