Necessity Entrepreneurship or Desperation

Few would claim that living beyond one’s means is an entrepreneurial move, because it cannot last forever. Eventually, things are bound to go very wrong as reality catches up. But such a situation of crisis may impel a sort of ingenuity in the form of necessity entrepreneurship: a radical change of behavior to make the best out of the situation. CNN Money reports on such changed behavior in the housing market. Many homeowners who defaulted on their mortgages still live in their (too expensive) homes – years after their last payments – awaiting (or fighting) foreclosure.

While this may not be an advisable strategy, some of these people have discovered and are exploiting the “opportunity” to live at virtually no cost. Their cases were referred by the bank to lawyers for foreclosure actions a long time ago, but these things take a lot of time – on average 565 days and sometimes several years. During that time “nothing” happens, so the people living there stay put – and pay nothing. Of course, this existence is subject to exaggerated uncertainty – especially for families with small children – but these previous homeowners may have no real alternatives.

The question for entrepreneurship scholars is, of course, whether this can at all be called entrepreneurship. This new kind of behavior may be but desperate actions taken by desperate people.

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3 Responses to Necessity Entrepreneurship or Desperation

  1. Matt McCaffrey says:

    It appears to me that the particular circumstances of the case do not alter the essence of entrepreneurial behavior, economically understood. Although the situation is question sounds like a sort of “criminal entrepreneurship” (the economic characteristics of market entrepreneurs are all there, and do not seem to disappear because of any specific aspects of home ownership or loan default.

    In other words, is not desperation a psychological category, or at least, a non-economic concept? I think any argument against these homeowners being entrepreneurs would have to depend on political or legal distinctions rather than economic ones.

  2. Peter Klein says:

    Another form of homeowner entrepreneurship, in this case, may be to walk away.

  3. SkepticProf says:

    “Not paying” is hardly entrepreneurial. Indeed, “lack of action” in general wouldn’t qualify as “entrepreneurial action.”

    They are doing something, however; they are actively fighting eviction and thus managing resources that they do not own. It’s these legal machinations — seizing the opportunity to delaying eviction, and thus using someone else’s asset for free — that are the potentially entrepreneurial activity, just as many other “beg, borrow, or steal” activities. It is hard to see how these legal machinations are productive to society, however; at best, they are redistributive, and at worst actively destructive.

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