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Institutions for the Selection of Entrepreneurs: Implications for Economic Growth and Financial Crises

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  • Pelikan, Pavel

    (The Research Institute of Industrial Economics)

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    Abstract

    The search for growth-promoting policies is found to demand knowledge of how growth depends upon actions of entrepreneurs and how these actions depend upon the prevailing institutions. While institutions have extensively been examined for their influences upon the freedoms and the incentives of entrepreneurs, and thereby upon the level of employment of resources, this paper examines their influences upon the selection of entrepreneurs, and thereby upon the efficiency of that employment. This selection is crucial in the realistic but in theory seldom considered cases in which all agents, including entrepreneurs, may differ in economic abilities. A simple model shows that in the long run, selection by market competition, especially when extended to financial markets, vastly outperforms selection controlled or protected politically. Such selection may outperform market selection only during a limited period, extendable only at the price of growing bad debts and financial crises.

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    Bibliographic Info

    Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 510.

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    Length: 43 pages
    Date of creation: 30 Jan 1999
    Date of revision: 15 Feb 2000
    Handle: RePEc:hhs:iuiwop:0510

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    Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
    Phone: +46 8 665 4500
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    Keywords: Eonomic growth; growth-promoting policies; institutions; economic abilities; entrepreneurs; investors; voters; market selection; government selection; financial markets; financial crises;

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    References

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    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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    1. Pelikan, Pavel, 1989. "Evolution, Economic Competence, and the Market for Corporate Control," Working Paper Series 215, Research Institute of Industrial Economics.
    2. Armen A. Alchian, 1950. "Uncertainty, Evolution, and Economic Theory," Journal of Political Economy, University of Chicago Press, vol. 58, pages 211.
    3. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1991. "The Allocation of Talent: Implications for Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 503-30, May.
    4. Andrei Shleifer & Robert W. Vishny, 1995. "A Survey of Corporate Governance," Harvard Institute of Economic Research Working Papers 1741, Harvard - Institute of Economic Research.
    5. Pranab Bardhan and John E. Roemer., 1991. "Market Socialism: A Case for Rejuvenation," Economics Working Papers 91-175, University of California at Berkeley.
    6. Pavel Pelikan, 1993. "Ownership of firms and efficiency: The competence argument," Constitutional Political Economy, Springer, vol. 4(3), pages 349-392, September.
    7. Pelikan, Pavel, 1989. "Evolution, economic competence, and the market for corporate control," Journal of Economic Behavior & Organization, Elsevier, vol. 12(3), pages 279-303, December.
    8. Pelikan, Pavel, 1997. "Allocation of Economic Competence in Teams: A Comparative Institutional Analysis," Working Paper Series 480, Research Institute of Industrial Economics.
    9. Sah, Raaj K & Stiglitz, Joseph E, 1991. "The Quality of Managers in Centralized versus Decentralized Organizations," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 289-95, February.
    10. Nicolas Barberis & Maxin Boycho & Andrei Shleifer & Natalia Tsukanova, 1995. "How Does Privatization Work? Evidence from the Russian Shops," Harvard Institute of Economic Research Working Papers 1721, Harvard - Institute of Economic Research.
    11. repec:fth:iniesr:480 is not listed on IDEAS
    12. Gary Gorton & Andrew Winton, 1998. "Banking in transition economies : does efficiency require instability?," Proceedings, Federal Reserve Bank of Cleveland, issue Aug, pages 621-655.
    13. Winter, Sidney G, 1971. "Satisficing, Selection, and the Innovating Remnant," The Quarterly Journal of Economics, MIT Press, vol. 85(2), pages 237-61, May.
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