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Entrepreneurial Boldness and Excessive Investment

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  • Isabelle Brocas
  • Juan D. Carrillo
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    Abstract

    We analyze investment by a population of hyperbolic discounting entrepreneurs. In order to avoid inefficient procrastination, agents with good prospects about their chances of success may choose to forego free information and to invest boldly. This explains an excessive level of investment in the economy. Building on this observation, we show that low risk-free interest rates favor bold entrepreneurship and entry mistakes. Furthermore, public intervention can be socially desirable: Forcing agents to acquire information before deciding whether to invest may reduce competitive interest rates and may be beneficial for all individuals in the economy. Copyright 2004 Blackwell Publishing, 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington Road, Oxford OX4 2DQ, UK..

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

    Volume (Year): 13 (2004)
    Issue (Month): 2 (06)
    Pages: 321-350

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    Handle: RePEc:bla:jemstr:v:13:y:2004:i:2:p:321-350

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    Web: http://www.blackwellpublishing.com/journal.asp?ref=1058-6407&site=1

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    Cited by:
    1. Isabelle Brocas & Juan D Carrillo, 2007. "The Brain as a Hierarchical Organization," Levine's Bibliography 122247000000001587, UCLA Department of Economics.
    2. Masaaki Kijima & Yuan Tian, 2013. "Investment and capital structure decisions under time-inconsistent preferences," KIER Working Papers 858, Kyoto University, Institute of Economic Research.
    3. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
    4. Hyytinen , Ari & Lahtonen, Jukka & Pajarinen, Mika, 2012. "Entrepreneurial optimism and survival," Research Discussion Papers 20/2012, Bank of Finland.
    5. Brocas, Isabelle & Carrillo, Juan D., 2005. "A theory of haste," Journal of Economic Behavior & Organization, Elsevier, vol. 56(1), pages 1-23, January.
    6. Yang, Yang & Shoji, Isao & Kanehiro, Sumei, 2009. "Optimal dividend distribution policy from the perspective of the impatient and loss-averse investor," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, Elsevier, vol. 38(3), pages 534-540, June.
    7. Hyytinen, Ari & Pajarinen, Mika, 2005. "Why Are All New Entrepreneurs Better Than Average? Evidence from Subjective Failure Rate Expectations," Discussion Papers, The Research Institute of the Finnish Economy 987, The Research Institute of the Finnish Economy.
    8. Catherine C. Eckel & Ragan Petrie, 2011. "Face Value," American Economic Review, American Economic Association, vol. 101(4), pages 1497-1513, June.
    9. Isabelle Brocas & Juan D. Carrillo, 2005. "The Brain as a Hierarchical Organization," Levine's Bibliography 172782000000000073, UCLA Department of Economics.
    10. Grenadier, Steven R. & Wang, Neng, 2007. "Investment under uncertainty and time-inconsistent preferences," Journal of Financial Economics, Elsevier, Elsevier, vol. 84(1), pages 2-39, April.
    11. Isabelle Brocas & Juan D. Carrillo, 2005. "The Brain as a Hierarchical Organization," Levine's Bibliography 784828000000000205, UCLA Department of Economics.

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