AbstractThis 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 InfoPaper 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.
Date of creation: 01 Feb 2001
Date of revision:
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Occupational Choice; Entrepreneurship; Imprecise Risk; Non-expected Utility; Innovation;
Other versions of this item:
- Luca Rigotti & Matthew Ryan & Rhema Vaithianathan, 2001. "Entrepreneurial Innovation," GE, Growth, Math methods 0103002, EconWPA.
- Rigotti, L. & Ryan, M. & Vaithianathan, R., 2001. "Entrepreneurial Innovation," Discussion Paper 2001-21, Tilburg University, Center for Economic Research.
- Luca Rigotti, Matthew Ryan and Rhema Vaithianathan., 2001. "Entrepreneurial Innovation," Economics Working Papers E01-296Rev, University of California at Berkeley.
- D5 - Microeconomics - - General Equilibrium and Disequilibrium
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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