Economics

Entrepreneurship is a risky activity which involves taking decisions in the face of uncertainty to reap certain rewards. This reward may vary from one person to the other depending on the need of the entrepreneur (Moschandreas, 1999). The rewards and benefits are the motivation behind ones entrepreneurial spirit to undertake risky ventures. Some entrepreneurs desire for fame and recognition while others desire for unlimited money both of which can be attained through profits (Parker  Stead, 1991). Therefore, the profits an entrepreneur makes through his superior knowledge and judgment earns him the desired rewards and benefits. Rising profits serve as the ultimate reward for the entrepreneur who makes use of his distinctive ability to take decisions in the face of uncertainty (Glancey  McQuaid, 2000). Profit as a reward can be better earned if the entrepreneur is able to protect the information from competitors and raise sufficient barriers to entry thereby creating a monopoly. This means that the size of the entrepreneurial reward depends on the monopoly power of the entrepreneur in order to create a good reputation and expand further to earn higher entrepreneurial rewards (Bowles, Edwards  Roosevelt, 2005).

Moreover, the higher the profits are perceived by a potential entrepreneur the more willing he is to invest in the market. In the long run, more entrepreneurs are expected to exploit the profitable opportunity available and compete against one another thus, reducing the size of expected profits (Harper, 2007). Though some entrepreneurs have superior knowledge and judgmental capability but the level of competition will decrease the level of expected rewards and profits (Barbera, 2009). Fewer opportunities are available to the new entrepreneurs as the number of active entrepreneurs in the market increase thus causing competition and forcing the expected level of profit to be determined by the time and energy spend along with the judgmental capability. This also becomes the equilibrium level of profit in the long run (Kay, 1996).

A number of entrepreneurship theories have also played a role in influencing the view of profit as a reward for entrepreneur. These theories view profit as a residual reward to entrepreneurship. Cassons theory is particularly relevant in this case which rests on three views (Casson, 2003). Firstly, profit is considered a result of monopoly pricing which takes place due to market imperfections and high barriers to entry. Imperfect competition takes place when there is lack of information and barriers to entry due to which few firms dominate the market and make monopoly profits. Entrepreneurs acting in such a market can make high profits and reap unlimited profits due to the power of monopoly pricing (Schumpeter, 1982).

Secondly, profit is viewed as a reward that entrepreneurs reap due to their decision making in the face of uncertainty (Casson, 2001). Entrepreneurs undertake risks by investing their money in the market in order to provide goods and services that satisfy the needs of the consumers at some future time. Uncertainty is involved because the entrepreneur cannot guarantee the satisfaction of the consumer needs with his offerings which will determined at a future time (Williamson, 1998). Therefore, profit serves as reward to the entrepreneur who acts in this face of risk and uncertainty. Moreover, risk is also involved when the entrepreneur recruits individuals to serve his purpose. The entrepreneur can hire a wrong person and then bear the loss by compensating him from his profits earned (Green  Sutcliffe, 1987). Thus profit serves as a reward against the uncertain action that entrepreneurs undertake and then bear their positive or negative consequences. This makes profit as a reward earned due to risk taking (Foss  Klein, 2002).

Thirdly, profit is also viewed as a reward for the innovative skills of the entrepreneur who identifies a need and then tries to satisfy it creatively. Innovation becomes an integral part of entrepreneurship since the job of the entrepreneur is to create more out of the existing resources and satisfy consumer needs effectively (Fulcher, 2004). The reward that the individual reaps after paying for the innovative products and processes becomes his entrepreneurial profit. As stated earlier, the more entrepreneurs begin copying the innovative idea the lesser is the level of profit achieved. Thus, the profit becomes the reward of the entrepreneur due to his innovative skills and capabilities (Kirzner, 1979).

Profit is explained by Marshall as a reward that an individual earns due to his management expertise in bringing the factors of production together. He perceives profit as a residual reward and not a return to the factor of production which is a result of the business ability and energy of the entrepreneur (Obrinsky, 1983). The return on land, labor and capital is not considered the entrepreneurial reward but the residual profit resulting due to the management abilities of the individual which distinguishes him as an entrepreneur is viewed as his reward (Heath, 2010). He stresses the fact that it is the management ability of the entrepreneur to create an innovative idea and implement it in the face of risk that earns him his reward as profit (Wu, 1990).

Thus, profit serves as the reward for the risk taking behavior and judgmental ability of the entrepreneur. These profits may rise in the face of high barriers to entry and superior knowledge leading to monopoly pricing (Nee  Swedberg, 2005). The entrepreneur earns profits for his decision making in risky situations about the coordination of resources. The entrepreneurial reward is different from the return on the factors of production but it is in fact reward for their business ability and effort spent in creating innovative concepts and making decisions in the face of uncertainty (Knight  McClure, 2009).