Entrepreneurial competition and its impact on the aggregate economy
AbstractThis paper models entrepreneurship as the entrepreneur's information processing activity in order to predict changes in demand and reallocate resources. The results show that allocative efficiency---and therefore aggregate productivity---increases through intensified competition by entrepreneurs grasping at opportunities. This fierce competition leads to price reductions that result in the improvement of measured aggregate productivity. The price reduction also forces relatively less able entrepreneurs to become workers. As resources are then dealt with only by relatively talented entrepreneurs, this selection effect also increases aggregate productivity. The paper also discusses how the selection effect influences the distribution of firm size.
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Bibliographic InfoArticle provided by Springer in its journal Journal of Economics.
Volume (Year): 97 (2009)
Issue (Month): 1 (May)
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Web page: http://www.springerlink.com/link.asp?id=108909
Entrepreneurship; Information; Prediction ability; Competition; Selection; Allocative efficiency; Productivity; Firm size distribution; E13; O40;
Other versions of this item:
- Katsuya Takii, 2008. "Entrepreneurial Competition and Its Impact on the Aggregate Economy," OSIPP Discussion Paper 08E010, Osaka School of International Public Policy, Osaka University.
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
- L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
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