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Entrepreneurial Innovation

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Author Info

  • Luca Rigotti

    (CentER, Tilburg University & University of California, Berkeley)

  • Matthew Ryan

    (Australian National University)

  • Rhema Vaithianathan

    (Australian National University)

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, 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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File URL: http://128.118.178.162/eps/ge/papers/0103/0103002.pdf
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Bibliographic Info

Paper provided by EconWPA in its series GE, Growth, Math methods with number 0103002.

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Length: 35 pages
Date of creation: 27 Apr 2001
Date of revision:
Handle: RePEc:wpa:wuwpge:0103002

Note: 35 pages, Acrobat .pdf
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Web page: http://128.118.178.162

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References

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  1. Dreze, Jacques H, 1985. "(Uncertainty and) the Firm in General Equilibrium Theory," Economic Journal, Royal Economic Society, vol. 95(380a), pages 1-20, Supplemen.
  2. Kelsey, D. & Spanjeres, W., 1997. "Uncertainty in Partnerships," Discussion Papers 97-16, Department of Economics, University of Birmingham.
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Citations

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Cited by:
  1. Takanori Adachi & Takao Asano, 2011. "Entrepreneurial Choice and Knightian Uncertainty with Borrowing Constraints," KIER Working Papers 803, Kyoto University, Institute of Economic Research.
  2. Rocco Huang, 2005. "Tolerance For Uncertainty and the Growth of Informationally Opaque Industries," Macroeconomics 0507020, EconWPA.
  3. Puri, Manju & Robinson, David T., 2007. "Optimism and economic choice," Journal of Financial Economics, Elsevier, vol. 86(1), pages 71-99, October.
  4. Luca Rigotti & Matthew Ryan & Rhema Vaithianathan, 2011. "Optimism and firm formation," Economic Theory, Springer, vol. 46(1), pages 1-38, January.
  5. 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.
  6. Jim Engle-Warnick & Javier Escobal & Sonia Laszlo, 2007. "Ambiguity Aversion as a Predictor of Technology Choice: Experimental Evidence from Peru," CIRANO Working Papers 2007s-01, CIRANO.
  7. 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.

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