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Adverse Selection and Entrepreneurship in a Model of Development

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Author Info
Esteban Jaimovich

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

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Length: 33 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:cca:wpaper:78

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

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Find related papers by JEL classification:
O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

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References listed on IDEAS
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  5. Luca Flabbi, 2007. "Prejudice and Gender Differentials in the U.S. Labor Market in the Last Twenty Years," Carlo Alberto Notebooks 57, Collegio Carlo Alberto. [Downloadable!]
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  12. Maristella Botticini & Zvi Eckstein, 2006. "Path Dependence and Occupations," Carlo Alberto Notebooks 3, Collegio Carlo Alberto. [Downloadable!]
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  14. Giovanni Mastrobuoni, 2006. "The Social Security Earnings Test Removal. Money Saved or Money Spent by the Trust Fund?," Carlo Alberto Notebooks 25, Collegio Carlo Alberto. [Downloadable!]
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  15. Stefano Demichelis & Jörgen W. Weibull, 2007. "Language, meaning and games: a model of communication, coordination and evolution," Carlo Alberto Notebooks 61, Collegio Carlo Alberto. [Downloadable!]
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  16. Elisa Luciano & Giovanna Nicodano, 2008. "Ownership links, leverage and credit risk," Carlo Alberto Notebooks 69, Collegio Carlo Alberto. [Downloadable!]
  17. Stefano Demichelis & Klaus Ritzberger, 2007. "Corporate Control and the Stock Market," Carlo Alberto Notebooks 60, Collegio Carlo Alberto. [Downloadable!]
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  19. Theodoros Diasakos, 2008. "Comparative Statics of General Equilibrium Asset Prices," Carlo Alberto Notebooks 72, Collegio Carlo Alberto. [Downloadable!]
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