homework # 1 - Isabella Tobon Homework Assignment 1 1...

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Isabella Tobon September 16, 2010 Homework Assignment # 1 1. According to Baumol, why is Schumpeter’s five-part categorization of innovation incomplete? What categories of activities does Baumol believe are left out? Baumol thinks that the flaw in Schumpeter’s five-part categorization is that it does not go far enough. He believes that there is no explicit mentioning of the innovation that comes from technology. Baumol mentions technology transfer, modifications of technology, geographic allocation of technology, etc. Therefore technology as part of innovation is ignored here. The very idea of taking technology and applying it in a new area increases wealth in a society. On the other hand, Baumol mentions that Schumpeter forgets to introduce the concepts of unproductive and destructive entrepreneurship which also encompass the categorization of innovation. This means that there are innovative activities of questionable value to society. These activities that are intended to benefit someone don’t really affect the wealth and benefit of a society. 2. According to Baumol, how does the set of rules in a society affect the prevalence of productive vs. unproductive (or even destructive) entrepreneurship in that locale? In each society you can find different numbers of entrepreneurs. Their ability to become more productive depends not only in their ability to innovate but on the conditions the country offers them, meaning the set of rules. The important part is to find out how the rules help entrepreneurs achieve their objective and affect the economy through the allocation of entrepreneurial resources. There is a relationship between the degree to
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