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Entrepreneurial Innovation

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Author Info
Luca Rigotti, Matthew Ryan and Rhema Vaithianathan.

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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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Publisher 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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References listed on IDEAS
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.:
  1. Sujoy Mukerji, 1996. "Understanding the nonadditive probability decision model (*)," Economic Theory, Springer, vol. 9(1), pages 23-46.
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  2. Hart, Oliver D., 1980. "Perfect competition and optimal product differentiation," Journal of Economic Theory, Elsevier, vol. 22(2), pages 279-312, April. [Downloadable!] (restricted)
  3. P. Dubey & J. Geanakoplos & M . Shubik, 2001. "Default and Punishment in General Equilibrium," Department of Economics Working Papers 01-07, Stony Brook University, Department of Economics. [Downloadable!]
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  4. Hendon, Ebbe, et al, 1994. "Expected Utility with Lower Probabilities," Journal of Risk and Uncertainty, Springer, vol. 8(2), pages 197-216, March.
  5. Dreze, Jacques H, 1985. "(Uncertainty and) the Firm in General Equilibrium Theory," Economic Journal, Royal Economic Society, vol. 95(380a), pages 1-20, Supplemen.
  6. Richard E. Kihlstrom & Jean-Jacques Laffont, . "A Competitive Entrepreneurial Model of a Stock Market," Rodney L. White Center for Financial Research Working Papers 2-80, Wharton School Rodney L. White Center for Financial Research.
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  7. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-87, May. [Downloadable!] (restricted)
  8. Jaffray, Jean-Yves & Wakker, Peter, 1993. " Decision Making with Belief Functions: Compatibility and Incompatibility with the Sure-Thing Principle," Journal of Risk and Uncertainty, Springer, vol. 7(3), pages 255-71, December.
  9. Makowski, Louis, 1980. "Perfect competition, the profit criterion, and the organization of economic activity," Journal of Economic Theory, Elsevier, vol. 22(2), pages 222-242, April. [Downloadable!] (restricted)
  10. Jensen, Richard, 1982. "Adoption and diffusion of an innovation of uncertain profitability," Journal of Economic Theory, Elsevier, vol. 27(1), pages 182-193, June. [Downloadable!] (restricted)
  11. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August. [Downloadable!] (restricted)
  12. Kelsey, D. & Spanjeres, W., 1997. "Uncertainty in Partnerships," Discussion Papers 97-16, Department of Economics, University of Birmingham.
  13. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1983. "Implicit Labor Contracts and Free Entry," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 55-105, Supplemen. [Downloadable!] (restricted)
  14. Ghirardato, Paolo, 1996. "Coping With Ignorance: Unforeseen Contingencies and Non-Additive Uncertainty," Working Papers 945, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  15. 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. [Downloadable!] (restricted)
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  1. 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. [Downloadable!]
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  2. Manju Puri & David Robinson, 2005. "Optimism and Economic Choice," NBER Working Papers 11361, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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