gross domestic product (GDP)—the magnitude of fl ows of goods and
services in the economy—is fundamentally grounded in the logic of
consumer and producer surpluses: the more exchange, the more value
created. In this frame of reference, Barro is right: No institution can
match the power of the large corporation in creating value.
A more broadly construed notion of the residual value created in
the course of a market transaction, however, turns out to be the key
to understanding the role of entrepreneurship. For all the diff erent
notions of entrepreneurship, the most fundamental and enduring
is the defi nition of the entrepreneur as the claimant of the residual
value generated by a new venture. Where producer and consumer
value are derived from single transactions (for example, the purchase
of a Ben & Jerry’s cone), the residual value claimed by an entrepreneur is derived from the process of building a venture (for example,
the founders’ equity in Ben & Jerry’s itself).
The most obvious value that is created by new ventures is a
fi nancial one, but that is not the sole result of these activities. In fact,
residual values can take nonfi nancial forms. There are two principal
types of nonfi nancial residual value that can be claimed by an entrepreneur: reputational and ethical. Reputational value is perhaps the
most important of the two. Muhammad Yunus, for example, may be
able to claim truthfully that he has never received a dividend from
Grameen Bank. But, there is no doubt that he personally has claimed
a dominant share of the reputational residual that the venture has
created. In this regard, Yunus is no diff erent from John D. Rockefeller, Bill Gates, or Steve Jobs. Personal reputation—like a brand
for a corporation—is a valuable privately held asset.
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Another signifi cant category of residual value derives from the ethical reward