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Adverse Selection and Entrepreneurship in a Model of Development

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  • Esteban Jaimovich

Abstract

This paper presents a theory in which risk-averse heterogeneously talented entrepreneurs are the key agents driving the process of development and modernisation. Entrepreneurial skills are private information, which prevents full risk sharing. In that setup, development to a modern industrial economy might fail to take place, since potentially talented entrepreneurs may refrain from taking on the entrepreneurial risks as a way to avoid income shocks. An interesting feature of the model is that the informational asymmetries in the economy are endogenous to the process of development, as they are related to the heterogeneity in entrepreneurial skills required in the manufacturing activities.

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Bibliographic Info

Paper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 78.

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Length: 27 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:cca:wpaper:78

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Keywords: Adverse Selection; Development; Entrepreneurship; Risk-Sharing;

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Citations

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Cited by:
  1. Inci, Eren, 2013. "Occupational choice and the quality of entrepreneurs," Journal of Economic Behavior & Organization, Elsevier, vol. 92(C), pages 1-21.
  2. Nishida, Keigo, 2012. "Credit constraints and the process of development," Economics Letters, Elsevier, vol. 116(3), pages 281-283.
  3. Braido, Luis & da Costa, Carlos & Dahlby, Bev, 2009. "Adverse Selection and Risk Aversion in Capital Markets," Working Papers 2009-15, University of Alberta, Department of Economics, revised 24 Mar 2009.
  4. Vera Catarina Rocha, 2012. "The entrepreneur in economic theory: from an invisible man toward a new research field," FEP Working Papers 459, Universidade do Porto, Faculdade de Economia do Porto.
  5. Giuseppe Coco & Giuseppe Pignataro, 2013. "Unfair credit allocations," Small Business Economics, Springer, vol. 41(1), pages 241-251, June.

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