David T. Mitchell

A (partial) review of entrepreneurship literature across disciplines

Purpose – The purpose of this paper is to stimulate researchers’ interest by acquainting them with some aspects of the entrepreneurship literature they may not have known.Design/methodology/approach – The paper is a non‐meta‐analytic literature review of several literatures in entrepreneurship.Findings – The entrepreneurship literature is vast and can be found in every discipline where humans and their behaviour are the object of analysis.Research limitations/implications – Because the entrepreneurship literature is so large and widespread, the paper reviews only a small, deliberately chosen sample of the literature.Originality/value – To the authors’ knowledge, no one has previously written a unified review of the market entrepreneurship, political entrepreneurship, and public choice.

Multiple measures of US entrepreneurial activity and classical liberal institutions

Purpose – The purpose of this paper is to provide a robustness check of the relationship between entrepreneurial activity and economic freedom. As a deliberate “robustness check,” the authors estimated various spatial measures of entrepreneurship found in the research literature, using the same estimator within a consistent model that included political institutions, proxied by the Economic Freedom of North America index. Like many exemplars in the literature, the authors’ focus was on the US states.Design/methodology/approach – The authors estimated models of five different measures of entrepreneurial activity in a model based on Reynolds, Storey, and Westhead (1994).Findings – The authors failed to replicate many of the results found in the literature. The various measures of entrepreneurship were related to different independent variables. Economic freedom was not a consistently significant predictor of entrepreneurial activity.Research limitations/implications – The empirical work focuses on the US st...

A Classroom Experiment on Exchange Rate Determination with Purchasing Power Parity

The authors developed a classroom experiment on exchange rate determination appropriate for undergraduate courses in macroeconomics and international economics. In the experiment, students represent citizens from different countries and need to obtain currency to purchase goods. By participating in an auction to buy currency, students gain a better understanding of currency markets and exchange rates. The implicit framework for exchange rate determination is one in which prices are perfectly flexible (in the long run) so that purchasing power parity (PPP) prevails. Additional treatments allow students to examine the effects of price changes, tariffs, and nontradable goods on the exchange rate and to explore the possible resulting deviations from PPP. The experiment is suitable for classes of 8 to 50 students and can be run in as short a period as 30 minutes.

Public Choice Lessons from the Wizarding World of Harry Potter

J.K Rowling’s series of books about the underage wizard Harry Potter is an exceptionally effective tool for introducing students to the key concepts of public choice. By keeping political figures at the forefront of the story, Rowling encourages students to recognize the differences between the choices made by individuals in markets and politics. To illuminate the pedagogical potential of the series, and to ease its adoption, we discuss a set of examples that best illustrate the key concepts of public choice. We also share a classroom exercise showcasing how the series can be used to promote active learning.

Are Powerful Majorities Inefficient for Parties and Efficient for Taxpayers? An Analysis of Budget Maximization in the United States

Recent studies examining the relationship between legislative majorities and state budgets have presented mixed results. We provide new insight on this relationship by employing stochastic frontier analysis to model the maximum potential budgets that could be feasibly produced, given a set of economic, political, and voter inputs. This allows us to examine directly how the size of ruling party majorities influences their ability to efficiently produce the maximum feasible budget. At the same time, we are able to analyze the inefficiency in budget maximization. We find that as parties consolidate power with large majorities—regardless of party identity—they are less able to maximize budgets leading to state budgets below the maximum possible size of government as estimated by our model. Our results suggest that parties that do not maximize spending are inefficient at spending but efficient at providing the services that voters want at a low price. Hence, those parties build larger coalitions.

Why Is There a Ratchet Effect? Evidence from Civil War Income Taxes

The ratchet effect in public finance refers to the historical phenomena that the size of government increases during a crisis but does not return to its previous level when the crisis ends. The traditional explanation is that voters change their views on the appropriate size of government during the crisis. But change in taste is an explanation of last resort: it should not be accepted without examining alternatives. This paper looks Civil War taxes as an illuminating case of the ratchet effect. Both the observed political process and the resulting mix of taxes suggest that interest groups, not voters, led to the ratchet effect in this case. During the Civil War both tariffs and income taxes increased, but only the higher tariff stayed. This paper uses an analytical narrative to show that this was because the new interest groups only wanted the higher tariff and not the income tax.

The Determinants of the Severity of State Fiscal Crises

During the most recent recession, many state governments faced substantial budget shortfalls. Those shortfalls are often blamed on external factors like the declining economy or reductions in federal aid. What politicians themselves do, especially during expansionary years—whether they enact spending increases, implement tax cuts, increase the size of their rainy day funds, or some combination thereof—is typically given less attention. We examine those factors and find that fiscal stress tends to be positively associated with spending growth, negatively associated with the size of rainy day funds, and not statistically significantly associated with the unemployment rate or federal aid.