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Entrepreneurship, Asymmetric Information and Unemployment

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Author Info

  • Robin Boadway

    ()
    (Department of Economics, Queen's University)

  • Nicolas Marceau

    ()
    (Center for Research on Economic Fluctuations and Employment, UQAM)

  • Maurice Marchand

    ()
    (IAG, Universite Catholique de Louvain, and CORE)

  • Marianne Vigneault

    ()
    (Department of Economics, Bishop's University)

Abstract

We examine how three sources of asymmetric information affect the supply of entrepreneurs and unemployment. In the first case, banks cannot observe entrepreneurs' risk of failure so ration credit. This increases the number of entrepreneurs and the level of unemployment. In the second case, firms cannot observe workers' effort so offer a wage above the market clearing one. This results in unemployment and too few entrepreneurs. The final case arises when firms cannot observe workers' abilities. A pooling wage is offered and results in too many entrepreneurs. The role of government in restoring efficiency is explored Dans ce texte, nous étudions l'impact de trois formes d'asymétrie d'information sur l'entrepreneurship et le chômage. Dans le premier cas, les banques ne peuvent observer la probabilité qu'un entrepreneur fasse faillite, ce qui les conduit à restreindre l'accès au crédit. Cela cause un accroissement du nombre d'entrepreneurs et du chômage. Dans un deuxième cas, les firmes ne peuvent observer l'effort de leurs travailleurs et offrent alors un salaire d'efficience. D'un tel salaire résulte du chômage et un trop petit nombre d'entrepreneurs. Dans le dernier cas, les firmes ne peuvent observer l'habileté de leurs travailleurs. Un même salaire est alors offert à tous les travailleurs, ce qui conduit à un trop grand npmbre d'entrepreneurs. Nous étudions les formes d'intervention gouvernementale permettant d'accroître l'efficacité.

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Bibliographic Info

Paper provided by CREFE, Université du Québec à Montréal in its series Cahiers de recherche CREFE / CREFE Working Papers with number 57.

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Length: 31 pages
Date of creation: Jan 1998
Date of revision:
Handle: RePEc:cre:crefwp:57

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Related research

Keywords: entrepreneurship; unemployment; occupational choice;

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References

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  1. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  2. Boadway, Robin & Marchand, Maurice & Pestieau, Pierre, 1991. "Optimal linear income taxation in models with occupational choice," Journal of Public Economics, Elsevier, vol. 46(2), pages 133-162, November.
  3. Besanko, David & Thakor, Anjan V., 1987. "Competitive equilibrium in the credit market under asymmetric information," Journal of Economic Theory, Elsevier, vol. 42(1), pages 167-182, June.
  4. Aghion, Philippe & Howitt, Peter, 1991. "Growth and Unemployment," CEPR Discussion Papers 577, C.E.P.R. Discussion Papers.
  5. Marc Cowling & Mark Taylor & Peter Mitchell, 2004. "Job Creators," Manchester School, University of Manchester, vol. 72(5), pages 601-617, 09.
  6. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-48, August.
  7. Richard Arnott & Joseph Stiglitz, 1991. "Equilibrium in Competitive Insurance Markets with Moral Hazard," NBER Working Papers 3588, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Pekka Ilmakunnas & Vesa Kanniainen, 2000. "Entrepreneurship, Economic Risks, and Risk Insurance in the Welfare State: Results with OECD Data 1978-93," CESifo Working Paper Series 356, CESifo Group Munich.
  2. Kanniainen, V. & Leppamaki, M., 2000. "Entrepreneurship in a Unionised Economy," University of Helsinki, Department of Economics 484, Department of Economics.
  3. Christian Keuschnigg & Soren Bo Nielsen, 2000. "Tax Policy, Venture Capital, and Entrepreneurship," NBER Working Papers 7976, National Bureau of Economic Research, Inc.
  4. Kar, Saibal, 2009. "International labor migration, asymmetric information and occupational choice," MPRA Paper 24106, University Library of Munich, Germany.
  5. Robin Boadway & Jean-François Tremblay, 2003. "Public Economics and Startup Entrepreneurs," CESifo Working Paper Series 877, CESifo Group Munich.
  6. Mirjam van Praag, 2003. "Initial Capital Constraints Hinder Entrepreneurial Venture Performance: An empirical analysis," CESifo Working Paper Series 887, CESifo Group Munich.
  7. Robin Boadway & Michael Keen, 2004. "Financing New Investments under Asymmetric Information: A General Approach," Working Papers 1017, Queen's University, Department of Economics.
  8. Oana Secrieru & Marianne Vigneault, 2004. "Public Venture Capital and Entrepreneurship," Working Papers 04-10, Bank of Canada.

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