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Entrepreneurial Competition and Its Impact on the Aggregate Economy

Author

Listed:
  • Katsuya Takii

    (Associate Professor, Osaka School of International Public Policy, Osaka University)

Abstract

This paper models entrepreneurship as the entrepreneur's information processing activity in order to predict changes in demand and reallocate resources. The results show that allocative efficiency---and therefore aggregate productivity---increases through intensified competition by entrepreneurs grasping at opportunities. This fierce competition leads to price reductions that result in the improvement of measured aggregate productivity. The price reduction also forces relatively less able entrepreneurs to become workers. As resources are then dealt with only by relatively talented entrepreneurs, this selection effect also increases aggregate productivity. The paper also discusses how the selection effect influences the distribution of firm size.

Suggested Citation

  • Katsuya Takii, 2008. "Entrepreneurial Competition and Its Impact on the Aggregate Economy," OSIPP Discussion Paper 08E010, Osaka School of International Public Policy, Osaka University.
  • Handle: RePEc:osp:wpaper:08e010
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    File URL: http://www.osipp.osaka-u.ac.jp/archives/DP/2008/DP2008E010.pdf
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    References listed on IDEAS

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    1. Mills, David E & Schumann, Laurence, 1985. "Industry Structure with Fluctuating Demand," American Economic Review, American Economic Association, vol. 75(4), pages 758-767, September.
    2. Takii, Katsuya, 2008. "Fiscal policy and entrepreneurship," Journal of Economic Behavior & Organization, Elsevier, vol. 65(3-4), pages 592-608, March.
    3. Schumpeter, Joseph A., 1947. "The Creative Response in Economic History," The Journal of Economic History, Cambridge University Press, vol. 7(02), pages 149-159, November.
    4. Israel M. Kirzner, 1997. "Entrepreneurial Discovery and the Competitive Market Process: An Austrian Approach," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 60-85, March.
    5. Casson, Mark, 2005. "Entrepreneurship and the theory of the firm," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 327-348, October.
    6. Marcus Asplund & Volker Nocke, 2003. "Firm Turnover in Imperfectly Competitive Markets," PIER Working Paper Archive 03-010, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    7. Welch, F, 1970. "Education in Production," Journal of Political Economy, University of Chicago Press, vol. 78(1), pages 35-59, Jan.-Feb..
    8. Marcus Asplund & Volker Nocke, 2006. "Firm Turnover in Imperfectly Competitive Markets -super-1," Review of Economic Studies, Oxford University Press, vol. 73(2), pages 295-327.
    9. Katsuya Takii, 2011. "Entrepreneurial Efficiency: Theory," The Japanese Economic Review, Japanese Economic Association, vol. 62(2), pages 196-214, June.
    10. Katsuya Takii, 2003. "Prediction Ability," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 80-98, January.
    11. David Thesmar & Mathias Thoenig, 2000. "Creative Destruction and Firm Organization Choice," The Quarterly Journal of Economics, Oxford University Press, vol. 115(4), pages 1201-1237.
    12. Schultz, Theodore W, 1975. "The Value of the Ability to Deal with Disequilibria," Journal of Economic Literature, American Economic Association, vol. 13(3), pages 827-846, September.
    13. Katsuya Takii, 2004. "The Value of Adaptability," Industrial Organization 0406004, EconWPA.
    14. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    15. Jose V. Rodriguez Mora & John Hassler, 2000. "Intelligence, Social Mobility, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 888-908, September.
    16. Scott Shane, 2000. "Prior Knowledge and the Discovery of Entrepreneurial Opportunities," Organization Science, INFORMS, vol. 11(4), pages 448-469, August.
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    Cited by:

    1. Jean-Paul Chavas, 2011. "On the microeconomics of diversification under learning," Journal of Economics, Springer, vol. 104(1), pages 25-47, September.

    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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