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Is Entrepreneurship Always Good for Growth?

  • Baochun Peng
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    Entrepreneurship may not be good for growth. We study the role of entrepreneurship in the context of an endogenous growth model. the exercise of entrepreneurship has two features in our model: (i) Entrepreneurs do not carry out research, instead, they select projects from the researchers, and (ii) Entrepreneurs' ability levels are heterogeneous and mutually unobservable. We find that an exogenous rise in the number of high ability entrepreneurs or their ability level may lead to a lower equilibrium growth rate. This negative relationship is caused by the rent seeking element in the exercise of entrepreneurship. Thus our finding challenges the commonly held belief that innovative entrepreneurship is rent creating.

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    Paper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number 0024.

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    Date of creation: Feb 2000
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    Handle: RePEc:san:crieff:0024
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    1. Grossman, G.M. & Helpman, E., 1989. "Quality Ledders In The Theory Of Growth," Papers 148, Princeton, Woodrow Wilson School - Public and International Affairs.
    2. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August.
    3. Baumol, William J, 1990. "Entrepreneurship: Productive, Unproductive, and Destructive," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 893-921, October.
    4. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October.
    5. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March.
    6. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-48, August.
    7. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
    8. LeRoy, Stephen F & Singell, Larry D, Jr, 1987. "Knight on Risk and Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 95(2), pages 394-406, April.
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