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Institutions for the Selection of Entrepreneurs: Implications for Economic Growth and Financial Crises

  • Pelikan, Pavel

    (The Research Institute of Industrial Economics)

Registered author(s):

    The search for growth-promoting policies is found to demand knowledge of how growth depends upon actions of entrepreneurs and how these actions depend upon the prevailing institutions. While institutions have extensively been examined for their influences upon the freedoms and the incentives of entrepreneurs, and thereby upon the level of employment of resources, this paper examines their influences upon the selection of entrepreneurs, and thereby upon the efficiency of that employment. This selection is crucial in the realistic but in theory seldom considered cases in which all agents, including entrepreneurs, may differ in economic abilities. A simple model shows that in the long run, selection by market competition, especially when extended to financial markets, vastly outperforms selection controlled or protected politically. Such selection may outperform market selection only during a limited period, extendable only at the price of growing bad debts and financial crises.

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    File URL: http://www.ifn.se/wfiles/wp/wp510-jan99b.pdf
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    Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 510.

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    Length: 43 pages
    Date of creation: 30 Jan 1999
    Date of revision: 15 Feb 2000
    Handle: RePEc:hhs:iuiwop:0510
    Contact details of provider: Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
    Phone: +46 8 665 4500
    Fax: +46 8 665 4599
    Web page: http://www.ifn.se/
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    1. Pelikan, Pavel, 1989. "Evolution, economic competence, and the market for corporate control," Journal of Economic Behavior & Organization, Elsevier, vol. 12(3), pages 279-303, December.
    2. Andrei Shleifer & Robert W. Vishny, 1996. "A Survey of Corporate Governance," NBER Working Papers 5554, National Bureau of Economic Research, Inc.
    3. Pranab Bardhan & John E. Roemer, 1992. "Market Socialism: A Case for Rejuvenation," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 101-116, Summer.
    4. Pavel Pelikan, 1993. "Ownership of firms and efficiency: The competence argument," Constitutional Political Economy, Springer, vol. 4(3), pages 349-392, September.
    5. Nicholas Barberis & Maxim Boycko & Andrei Shleifer & Natalia Tsukanova, 1995. "How Does Privatization Work? Evidence from the Russian Shops," NBER Working Papers 5136, National Bureau of Economic Research, Inc.
    6. Pelikan, Pavel, 1997. "Allocation of Economic Competence in Teams: A Comparative Institutional Analysis," Working Paper Series 480, Research Institute of Industrial Economics.
    7. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1990. "The Allocation of Talent: Implicationsfor Growth," University of Chicago - George G. Stigler Center for Study of Economy and State 65, Chicago - Center for Study of Economy and State.
    8. Gary Gorton & Andrew Winton, 1998. "Banking in transition economies : does efficiency require instability?," Proceedings, Federal Reserve Bank of Cleveland, issue Aug, pages 621-655.
    9. Winter, Sidney G, 1971. "Satisficing, Selection, and the Innovating Remnant," The Quarterly Journal of Economics, MIT Press, vol. 85(2), pages 237-61, May.
    10. Armen A. Alchian, 1950. "Uncertainty, Evolution, and Economic Theory," Journal of Political Economy, University of Chicago Press, vol. 58, pages 211.
    11. Pelikan, Pavel, 1989. "Evolution, Economic Competence, and the Market for Corporate Control," Working Paper Series 215, Research Institute of Industrial Economics.
    12. Sah, Raaj K & Stiglitz, Joseph E, 1991. "The Quality of Managers in Centralized versus Decentralized Organizations," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 289-95, February.
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