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Imperfect Competition and Growth with Entrepreneurial Risk

  • Christiane Clemens

This paper analyzes an overlapping generations endogenous growth model of occupational choice under risk in a two-sector economy with intermediate and final goods. Agents choose between business ownership in the monopolistically competitive intermediate goods industry or employment as a worker in this sector. Firm-specific profits are stochastic. Occupational choice under risk endogenizes the number of firms and products in the intermediate goods industry. The analysis shows that economic performance and growth both depend on the entrepreneurship rate and are inefficiently low compared with an economy with perfect markets for pooling risks. Monopolistic competition partly offsets the negative income effects from a too low level of entrepreneurial risk-taking. Copyright 2008 The Authors.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0475.2008.00430.x
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Article provided by Verein für Socialpolitik in its journal German Economic Review.

Volume (Year): 9 (2008)
Issue (Month): (05)
Pages: 180-206

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Handle: RePEc:bla:germec:v:9:y:2008:i::p:180-206
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  1. S. M. Kanbur, 1980. "A Note on Risk Taking, Entrepreneurship, and Schumpeter," History of Political Economy, Duke University Press, vol. 12(4), pages 489-498, Winter.
  2. Abhijit Banerjee & Andrew F. Newman, 1989. "Risk-Bearing and the Theory of Income Distribution," Discussion Papers 877, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  4. Blanchflower, D.G. & Oswald, A., 1991. "What Makes an Entrepreneur?," Economics Series Working Papers 99125, University of Oxford, Department of Economics.
  5. Abhijit V. Banerjee & Andrew F. Newman, 1990. "Occupational Choice and the Process of Development," Discussion Papers 911, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Christiane Clemens & Maik Heinemann, 2005. "On the Effects of Redistribution on Growth and Entrepreneurial Risk-Taking," Working Paper Series in Economics 6, University of Lüneburg, Institute of Economics.
  7. Ghatak, Maitreesh & Morelli, Massimo & Sjostrom, Tomas, 2001. "Occupational Choice and Dynamic Incentives," Review of Economic Studies, Wiley Blackwell, vol. 68(4), pages 781-810, October.
  8. Marco Cagetti & Mariacristina De Nardi, 2005. "Entrepreneurship, frictions, and wealth," Working Paper Series WP-05-09, Federal Reserve Bank of Chicago.
  9. Clemens, Christiane, 2006. "Monopolistic competition and entrepreneurial risk-taking," Economics Letters, Elsevier, vol. 93(1), pages 68-74, October.
  10. Schmitz, James A, Jr, 1989. "Imitation, Entrepreneurship, and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 721-39, June.
  11. Mihir Desai & Paul Gompers & Josh Lerner, 2003. "Institutions, Capital Constraints and Entrepreneurial Firm Dynamics: Evidence from Europe," NBER Working Papers 10165, National Bureau of Economic Research, Inc.
  12. Clemens Christiane, 2006. "Status Concerns and Occupational Choice Under Uncertainty," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 6(1), pages 1-25, August.
  13. William M. Gentry & R. Glenn Hubbard, 2000. "Entrepreneurship and Household Saving," NBER Working Papers 7894, National Bureau of Economic Research, Inc.
  14. Cramer, J. S. & Hartog, J. & Jonker, N. & Van Praag, C. M., 2002. "Low risk aversion encourages the choice for entrepreneurship: an empirical test of a truism," Journal of Economic Behavior & Organization, Elsevier, vol. 48(1), pages 29-36, May.
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