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Entrepreneurship, Asymmetric Information, and Unemployment

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  • Robin Boadway
  • Nicolas Marceau
  • Maurice Marchand
  • Marianne Vigneault

Abstract

We examine how three sources of asymmetric information affect the supply of entrepreneurs and unemployment. In the first case, banks cannot observe entrepreneurs' risk of failure so ration credit. This increases the number of entrepreneurs and the level of unemployment. In the second case, firms cannot observe workers' effort so offer a wage above the market clearing one. This results in unemployment and too few entrepreneurs. The final case arises when firms cannot observe workers' abilities. A pooling wage is offered and results in too many entrepreneurs. The role of government in restoring efficiency is explored. Copyright Kluwer Academic Publishers 1998

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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 5 (1998)
Issue (Month): 3 (July)
Pages: 307-327

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Handle: RePEc:kap:itaxpf:v:5:y:1998:i:3:p:307-327

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Web page: http://www.springerlink.com/link.asp?id=102915

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Keywords: Entrepreneurship; unemployment; occupational choice;

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References

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  1. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  2. Boadway, Robin & Marchand, Maurice & Pestieau, Pierre, 1991. "Optimal linear income taxation in models with occupational choice," Journal of Public Economics, Elsevier, vol. 46(2), pages 133-162, November.
  3. Marc Cowling & Mark Taylor & Peter Mitchell, 2004. "Job Creators," Manchester School, University of Manchester, vol. 72(5), pages 601-617, 09.
  4. Richard Arnott & Joseph Stiglitz, 1991. "Equilibrium in Competitive Insurance Markets with Moral Hazard," NBER Working Papers 3588, National Bureau of Economic Research, Inc.
  5. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(4), pages 719-48, August.
  6. Besanko, David & Thakor, Anjan V., 1987. "Competitive equilibrium in the credit market under asymmetric information," Journal of Economic Theory, Elsevier, vol. 42(1), pages 167-182, June.
  7. Aghion, Philippe & Howitt, Peter, 1991. "Growth and Unemployment," CEPR Discussion Papers 577, C.E.P.R. Discussion Papers.
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Citations

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Cited by:
  1. Christian Keuschnigg & Soren Bo Nielsen, 2000. "Tax Policy, Venture Capital, and Entrepreneurship," NBER Working Papers 7976, National Bureau of Economic Research, Inc.
  2. Pekka Ilmakunnas & Vesa Kanniainen, 2000. "Entrepreneurship, Economic Risks, and Risk Insurance in the Welfare State: Results with OECD Data 1978-93," CESifo Working Paper Series 356, CESifo Group Munich.
  3. Robin Boadway & Jean-François Tremblay, 2003. "Public Economics and Startup Entrepreneurs," CESifo Working Paper Series 877, CESifo Group Munich.
  4. Vesa Kanniainen & Mikko Leppamaki, 2000. "Entrepreneurship in a Unionised Economy," Econometric Society World Congress 2000 Contributed Papers 1473, Econometric Society.
  5. Mirjam van Praag, 2003. "Initial Capital Constraints Hinder Entrepreneurial Venture Performance: An empirical analysis," CESifo Working Paper Series 887, CESifo Group Munich.
  6. Robin Boadway & Michael Keen, 2004. "Financing New Investments under Asymmetric Information: A General Approach," Working Papers, Queen's University, Department of Economics 1017, Queen's University, Department of Economics.
  7. Kar, Saibal, 2009. "International labor migration, asymmetric information and occupational choice," MPRA Paper 24106, University Library of Munich, Germany.
  8. Oana Secrieru & Marianne Vigneault, 2004. "Public Venture Capital and Entrepreneurship," Working Papers 04-10, Bank of Canada.

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