TAILIEUCHUNG - COGNITION AND ECONOMICS PART 7

AUSTRIAN THEORY OF ENTREPRENEURSHIP MEETS THE SOCIAL SCIENCE AND BIOECONOMICS OF THE ETHNICALLY HOMOGENEOUS MIDDLEMAN GROUP. The phenomenon of the ethnically homogeneous middleman group (EHMG) or ethnic trade network | AUSTRIAN THEORY OF ENTREPRENEURSHIP MEETS THE SOCIAL SCIENCE AND BIOECONOMICS OF THE ETHNICALLY HOMOGENEOUS MIDDLEMAN GROUP Janet T. Landa INTRODUCTION The phenomenon of the ethnically homogeneous middleman group EHMG or ethnic trade network - the Chinese merchants in Southeast Asia the Gujarati-Indians merchants in East Africa the Jewish merchants in medieval Europe etc. - is ubiquitous in stateless societies pre-industrial and in less-developed economies Curtin 1984 . Neoclassical Walrasian theory of exchange cannot explain the existence of merchants let alone the phenomenon of the EHMG. This is because Neoclassical theory of exchange is a static theory of frictionless perfectly competitive markets with the Walrasian auctioneer costlessly coordinating the plans of anonymous producers sellers and consumers buyers so as to achieve equilibrium. There is no role for merchants in the Neoclassical theory of exchange. Cognition and Economics Advances in Austrian Economics Volume 9 177-200 Copyright 2007 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN 1529-2134 doi S1529-2134 06 09007-7 177 178 JANET T. LANDA Unlike the Walrasian theory of exchange Israel Kirzner 1973 has developed an Austrian theory of market processes in which the arbitragerentrepreneur plays a central role in coordinating the plans of producers and consumers. However Kirzner s theory of entrepreneurship is unable to explain the phenomenon of the EHMG because his theory implicitly assumes that entrepreneurs operate in capitalist markets with a well-developed legal framework for the enforcement of contracts. In order to explain the EHMG it is necessary to take account of the institutional environment for entrepreneurship as well as entrepreneurial studies relevant for less-developed economies where the legal infrastructure is not well-developed. I have developed a theory of the EHMG drawing upon the key concepts of transaction costs and institution in new institutional .

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