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Entrepreneurial Innovation

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  • Luca Rigotti, Matthew Ryan and Rhema Vaithianathan.

Abstract

This paper constructs an equilibrium model of entrepreneurial innovation where individuals differ in their attitude toward uncertainty. Unlike previous models of innovation, the firm-formation process is endogenous. An entrepreneur, who owns residual profits, uti lizes an uncertain technology and hires a worker who may only be partially isolated from uncertainty. While the available production technologies are exogenously specified, the tech nologies that operate in equilibrium are endogenous, depending on both the entrepreneur's prior beliefs about the profitability of the technology, as well as the worker's willingness to work with the uncertain technology. The general equilibrium setting allows us to explore the impact of innovation on the nature of the firm. The relationship between technological uncertainty and the nature of the firm is able to explain the commonly observed S-shaped diffusion profile. As uncertainty falls, firms evolve from being entrepreneurial to corporate, finally becoming bureaucratic.

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Bibliographic Info

Paper provided by University of California at Berkeley in its series Economics Working Papers with number E01-296Rev.

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Date of creation: 01 Feb 2001
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Handle: RePEc:ucb:calbwp:e01-296rev

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Postal: University of California at Berkeley, Berkeley, CA USA
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Web page: http://www.haas.berkeley.edu/groups/iber/wps/econwp.html
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References

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  1. Dreze, J.H., 1984. "(Uncertainty and) the firm in general equilibrium theory," CORE Discussion Papers 1984026, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Kelsey, D. & Spanjeres, W., 1997. "Uncertainty in Partnerships," Discussion Papers 97-16, Department of Economics, University of Birmingham.
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Cited by:
  1. 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.
  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. Manju Puri & David Robinson, 2005. "Optimism and Economic Choice," NBER Working Papers 11361, National Bureau of Economic Research, Inc.
  4. 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.
  5. Luca Rigotti & Matthew Ryan & Rhema Vaithianathan, 2011. "Optimism and firm formation," Economic Theory, Springer, vol. 46(1), pages 1-38, January.
  6. Takanori Adachi & Takao Asano, 2011. "Entrepreneurial Choice and Knightian Uncertainty with Borrowing Constraints," KIER Working Papers 803, Kyoto University, Institute of Economic Research.
  7. 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.

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