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Entrepreneurial Choice and Knightian Uncertainty with Borrowing Constraints


  • Takanori Adachi

    () (School of Economics, Nagoya University)

  • Takao Asano

    () (Faculty of Economics, Okayama University)


This paper studies the effects of Knightian uncertainty, or ambiguity, on entrepreneurial choice. By distinguishing between risk and ambiguity, we first show that ambiguity aversion makes it less likely that an individual will become an entrepreneur. It is also shown that an increase in ambiguity unambiguously reduces the amount of investment. In the presence of borrowing constraints, the less ambiguity averse is the individual, the more likely is his or her investment to be constrained. More importantly, constrained wage workers, who would become entrepreneurs in the absence of credit market imperfection, emerge if and only if the market wage is high enough. These individuals are characterized by an intermediate degree of ambiguity aversion. When interpreting these constrained wage workers as managerial and professional workers, our model predicts the rise of such workers in the process of economic development.

Suggested Citation

  • Takanori Adachi & Takao Asano, 2011. "Entrepreneurial Choice and Knightian Uncertainty with Borrowing Constraints," KIER Working Papers 803, Kyoto University, Institute of Economic Research.
  • Handle: RePEc:kyo:wpaper:803

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    More about this item


    Entrepreneurship; Knightian Uncertainty; Risk; Borrowing Constraints;

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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