When offering a novel product, the entrepreneur desires the customer to choose to “buy” (from the entrepreneur) rather than to “make.” Transaction cost economics provides guidance to firms considering a make-versus-buy decision. In this paper we extend transaction cost economics to examine the novel transactions proposed by the entrepreneur. Application of the theory identifies three crucial considerations for the transaction: the cost of quality measurement, the risk of overconfidence by the entrepreneur (here termed identity risk), and the required cost of necessary transaction specific assets. By extending transaction cost analysis to cover novel transactions across customers, entrepreneurship can be analyzed using established theories and measures to generate novel propositions.

Discovering entrepreneurial opportunities requires that individuals not only possess some form of prior knowledge, but that they also have the cognitive abilities that allow them to value and exploit that knowledge. This article builds upon and extends this line of inquiry by examining the relationship between opportunity identification and learning. Based upon an experimental task and other data collected from 380 technology professionals, the article defines a relationship between how individuals acquire and transform information and experience (i.e., learning) in order to identify opportunities. After analyzing the empirical data, the article develops the concept of learning asymmetries and explains how the manner in which people learn may affect their ability to identify entrepreneurial opportunities.