Taking the Plunge: Teaching the Microeconomics of Entrepreneurship

Despite the importance of entrepreneurship in market economies, it is seldom given extensive coverage in undergraduate economics courses. Authors documenting its limited treatment in textbooks call for more in-depth, microtheoretic analyses that go beyond definitions and descriptions. The present paper represents an initial attempt to fill this gap in our pedagogy by describing a simple model of the entrepreneur “plunge” decision that is appropriate for intermediate microeconomics (and related) courses. The model, an extension of Scitovsky’s classic theory of the owner-managed firm, provides a formal analysis of the choice between paid employment and entrepreneurship that is based on utility maximization and takes into account the pecuniary and non-pecuniary benefits/costs of the two options. The intellectual origins and classroom presentation of the model are also discussed.