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Entrepreneurial Innovation

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  • Rigotti, Luca
  • Ryan, Matthew
  • Vaithianathan, Rema

Abstract

This paper presents an equilibrium model in which the process of firm formation and technology adoption is endogenous. Individuals decide whether to work in an existing firm for a posted wage, or to establish a new firm. Entrepreneurs hire a single worker and choose a production technology from a fixed set. The stochastic properties of different technologies are known with different, and exogenously specified, degrees of precision. We use Dempster's (967) lower probabilities to characterize these differences in objective precision of risk information. Individuals in the model are heterogeneous with respect to their tolerance of imprecise risk. This heterogeneity determines which technologies are adopted in equilibrium, the number of firms adopting each active technology, firm structure (risk attitudes of owner and worker), and the wage differentials across firms adopting different technologies. We can also parametrically alter the risk precision associated with a given technology to examine the effect on equilibrium. This comparative static exercise suggests an explanation for the commonly observed S-shaped diffusion profile for successful innovations.

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Bibliographic Info

Paper provided by Department of Economics, Institute for Business and Economic Research, UC Berkeley in its series Department of Economics, Working Paper Series with number qt508109h4.

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Date of creation: 01 Feb 2001
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Handle: RePEc:cdl:econwp:qt508109h4

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Related research

Keywords: Occupational Choice; Entrepreneurship; Imprecise Risk; Non-expected Utility; Innovation;

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References

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  1. Dreze, Jacques H, 1985. "(Uncertainty and) the Firm in General Equilibrium Theory," Economic Journal, Royal Economic Society, vol. 95(380a), pages 1-20, Supplemen.
  2. Kelsey, D. & Spanjeres, W., 1997. "Uncertainty in Partnerships," Discussion Papers 97-16, Department of Economics, University of Birmingham.
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Citations

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Cited by:
  1. Luca Rigotti & Matthew Ryan & Rhema Vaithianathan, 2011. "Optimism and firm formation," Economic Theory, Springer, vol. 46(1), pages 1-38, January.
  2. Jim Engle-Warnick & Javier Escobal & Sonia Laszlo, 2007. "Ambiguity Aversion As A Predictor Of Technology Choice: Experimental Evidence From Peru," Departmental Working Papers 2007-04, McGill University, Department of Economics.
  3. Jim Engle-Warnick & Javier Escobal & Sonia Laszlo, 2006. "Risk preference, ambiguity aversion and technology choice: Experimental and survey evidence from rural peru," Artefactual Field Experiments 00042, The Field Experiments Website.
  4. Daniel Schunk, 2009. "What Determines Household Saving Behavior? An Examination of Saving Motives and Saving Decisions," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 229(4), pages 467-491, August.
  5. Takanori Adachi & Takao Asano, 2011. "Entrepreneurial Choice and Knightian Uncertainty with Borrowing Constraints," KIER Working Papers 803, Kyoto University, Institute of Economic Research.
  6. Manju Puri & David Robinson, 2005. "Optimism and Economic Choice," NBER Working Papers 11361, National Bureau of Economic Research, Inc.
  7. Ward, Patrick S. & Singh, Vartika, 2013. "Risk and Ambiguity Preferences and the Adoption of New Agricultural Technologies: Evidence from Field Experiments in Rural India," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150794, Agricultural and Applied Economics Association.

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