AbstractThis 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, utilizes an uncertain technology and hires a worker who may only be partially isolated from uncertainty. While the available production technologies are exogenously specified, the technologies 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 InfoPaper provided by EconWPA in its series GE, Growth, Math methods with number 0103002.
Length: 35 pages
Date of creation: 27 Apr 2001
Date of revision:
Note: 35 pages, Acrobat .pdf
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Other versions of this item:
- 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.
- Rigotti, Luca & Ryan, Matthew & Vaithianathan, Rema, 2001. "Entrepreneurial Innovation," Department of Economics, Working Paper Series qt508109h4, Department of Economics, Institute for Business and Economic Research, UC 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
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