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Entrepreneurship and Growth - An Overlapping Generations Approach -

  • Clemens, Christiane

This paper discusses a two-sector neoclassical overlapping generations economy with intermediate and final goods in the spirit of Romer (1990). The risk averse agents engage in one of two alternative occu pations: either firrm-ownership in the intermediate goods sector, char acterized by monopolistic competition, or employment as a worker in this sector. The occupational choice under risk endogenizes the num ber of firms and products in the intermediate goods industry. Since entrepreneurial profits are stochastic, an inefficiently low number of agents chooses firm-ownership. We find that expected profits of mo nopolists do not vanish in equilibrium and that the level of economic performance is inefficiently low due to the presence of risk. This result carries over to a suboptimally low growth rate in an enodgenous growth context.

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Paper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Hannover Economic Papers (HEP) with number dp-304.

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Length: 30 pages
Date of creation: Oct 2004
Date of revision:
Handle: RePEc:han:dpaper:dp-304
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  1. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  2. David B. Audretsch & A. Roy Thurik, 2000. "Capitalism and democracy in the 21st Century: from the managed to the entrepreneurial economy," Journal of Evolutionary Economics, Springer, vol. 10(1), pages 17-34.
  3. Grossman, Gene M & Helpman, Elhanan, 1991. "Quality Ladders in the Theory of Growth," Review of Economic Studies, Wiley Blackwell, vol. 58(1), pages 43-61, January.
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  5. BOADWAY, Robin & MARCHAND, Maurice & PESTIEAU, Pierre, . "Optimal linear income taxation in models with occupational choice," CORE Discussion Papers RP -958, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  7. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 35-52, January.
  8. 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.
  9. Christian Keuschnigg & Soren Bo Nielsen, 2000. "Tax Policy, Venture Capital, and Entrepreneurship," NBER Working Papers 7976, National Bureau of Economic Research, Inc.
  10. 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.
  11. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," Working papers 527, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Chou, Chien-Fu & Shy, Oz, 1991. "An overlapping generations model of self-propelled growth," Journal of Macroeconomics, Elsevier, vol. 13(3), pages 511-521.
  13. Aghion, Philippe & Bolton, Patrick, 1997. "A Theory of Trickle-Down Growth and Development," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 151-72, April.
  14. Audretsch, David B & Thurik, A R Roy, 2000. "Impeded Industrial Restructuring: The Growth Penalty," CEPR Discussion Papers 2648, C.E.P.R. Discussion Papers.
  15. 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.
  16. Blanchflower, David G & Oswald, Andrew J, 1998. "What Makes an Entrepreneur?," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 26-60, January.
  17. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  18. Iyigun, Murat F & Owen, Ann L, 1998. "Risk, Entrepreneurship, and Human-Capital Accumulation," American Economic Review, American Economic Association, vol. 88(2), pages 454-57, May.
  19. Philippe Aghion & Abhijit Banerjee & Thomas Piketty, 1999. "Dualism And Macroeconomic Volatility," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1359-1397, November.
  20. 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.
  21. Poutvaara Panu, 2002. "Income Redistribution and Risky Occupational Choices," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 2(1), pages 1-19, July.
  22. Lazear, Edward, 2003. "Entrepreneurship," IZA Discussion Papers 760, Institute for the Study of Labor (IZA).
  23. Blau, David M, 1987. "A Time-Series Analysis of Self-employment in the United State," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 445-67, June.
  24. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
  25. Piketty, Thomas, 1997. "The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 173-89, April.
  26. Quadrini, Vincenzo, 1999. "The Importance of Entrepreneurship for Wealth Concentration and Mobility," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 45(1), pages 1-19, March.
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