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Entrepreneurial competition and its impact on the aggregate economy

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  • Katsuya Takii

Abstract

This 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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Suggested Citation

  • Katsuya Takii, 2009. "Entrepreneurial competition and its impact on the aggregate economy," Journal of Economics, Springer, vol. 97(1), pages 1-18, May.
    • Handle: RePEc:kap:jeczfn:v:97:y:2009:i:1:p:1-18
    DOI: 10.1007/s00712-008-0056-5
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    5. Marc J. Melitz & Giancarlo I. P. Ottaviano, 2021. "Market Size, Trade, and Productivity," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 4, pages 87-108, World Scientific Publishing Co. Pte. Ltd..
    6. Katsuya Takii, 2003. "Prediction Ability," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 80-98, January.
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    17. Takii, Katsuya, 2007. "The value of adaptability--Through the analysis of a firm's prediction ability," Journal of Economics and Business, Elsevier, vol. 59(2), pages 144-162.
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    Cited by:

    1. Jean-Paul Chavas, 2011. "On the microeconomics of diversification under learning," Journal of Economics, Springer, vol. 104(1), pages 25-47, September.
    2. Mohammad Zarei, 2017. "Entrepreneurial Tournaments: Towards Disclosing the Rivalry Process Among Corporate Entrepreneurs," Journal of Entrepreneurship, Management and Innovation, Fundacja Upowszechniająca Wiedzę i Naukę "Cognitione", vol. 13(2), pages 33-57.

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    More about this item

    Keywords

    Entrepreneurship; Information; Prediction ability; Competition; Selection; Allocative efficiency; Productivity; Firm size distribution; E13; O40;
    All these keywords.

    JEL classification:

    • 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; Information and Knowledge; Communication; Belief; Unawareness
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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