50it is interesting to consider the role of smaller companies and even individuals in this arena. For example, partnerships between new (smaller) ventures and large established ﬁrms abound in several industries such as biopharmaceuticals, ﬁntech, and telecommunications. Additionally, multinational ﬁrms routinely engage in corporate entrepreneurship of various kinds.

In examining the role of effectual entrepreneurs in this arena, it is important to note that innovation and valuable innovation are two different things. Furthermore, not all innovations, especially valuable innovations, are produced by scientists in R&D, whether within large companies or public sector organizations. Users, suppliers, and other stakeholders in the value chain often produce innovations that prove to be more valuable in terms of actual adoption in the market or even in creating new markets. In fact, innovators often miss markets because they rely on predictions about who the customers will be that later turn out to be incorrect. The CD-ROM, for example, was invented by scientists that auctioned it off just before their patents were about to expire. Using the invention for music was an act of effectual entrepreneurship. Even the internet served only scientists for about 15 years before it was commercialized by entrepreneurs who built more user-friendly interfaces allowing nonscientists to use it for a myriad of purposes.

51An Effectual Analysis of Markets and States

In other words, while innovation policy has been shown to work in moving forward the frontiers of science, transforming that frontier and ensuing technologies into valuable products and markets seems to leverage the dispersion of knowledge across idiosyncratic individuals argued for by economists such as Hayek (1977) and Buchanan and Vanberg (1991). Such idiosyncrasies are impossible to predict ex ante, making effectual approaches invaluable, a point I will return to later in this chapter. Innovation policymakers need to carefully consider how to invite in effectual entrepreneurs or at least not barricade the system against them. One way to accomplish that could be to institute X-prizes such as the privately funding Ansai X-prize that kickstarted SpaceshipOne and the cocreation of the private space industry in recent times.

6 Markets and States as Outcomes of the Effectual Process

Any analysis of markets and states has to examine their role in human well-being and the societal innovation and productivity that feed into that well-being. As seen above, one organizing principle of markets consists in the role of idiosyncratic preferences. Whether attributed to the Adam Smith of Moral Sentiments or Wealth of Nations, preferences and values need not be extrinsically dictated and enforced, nor is collective consensus required before transactions happen. In fact, effectuation shows how market transactions can be one way for such consensus to come about and even for new frontiers for moral sentiments to be shaped both at individual and societal levels. Both new goals worth achieving and new governance mechanisms for alignment and enforcement can be forged through chains of intersubjective interactions in the effectual process. However, market transactions are still deemed to be driven by expectations of the upside, whether economically or social-psychologically speaking. As proponents of markets have argued and social entrepreneurs have shown in practice, a wider range of problems can be tackled through market mechanisms than might have been conceptualized in economics textbooks. Recent examples include microﬁnance in the alleviation of poverty through entrepreneurship, income-share agreements to