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Entrepreneurial Innovation

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  • Luca Rigotti, Matthew Ryan and Rhema Vaithianathan.

Abstract

This paper constructs an equilibrium model of entrepreneurial innovation where individuals differ in their attitude toward uncertainty. Unlike previous models of innovation, the firm-formation process is endogenous. An entrepreneur, who owns residual profits, uti lizes an uncertain technology and hires a worker who may only be partially isolated from uncertainty. While the available production technologies are exogenously specified, the tech nologies that operate in equilibrium are endogenous, depending on both the entrepreneur's prior beliefs about the profitability of the technology, as well as the worker's willingness to work with the uncertain technology. The general equilibrium setting allows us to explore the impact of innovation on the nature of the firm. The relationship between technological uncertainty and the nature of the firm is able to explain the commonly observed S-shaped diffusion profile. As uncertainty falls, firms evolve from being entrepreneurial to corporate, finally becoming bureaucratic.

Suggested Citation

  • Luca Rigotti, Matthew Ryan and Rhema Vaithianathan., 2001. "Entrepreneurial Innovation," Economics Working Papers E01-296Rev, University of California at Berkeley.
  • Handle: RePEc:ucb:calbwp:e01-296rev
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    References listed on IDEAS

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    1. 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 808-827, August.
    2. 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.
    3. 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.
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    Citations

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    Cited by:

    1. Schunk, Daniel, 2007. "What determines the saving behavior of German households? : an examination of saving motives and saving decisions," Papers 07-10, Sonderforschungsbreich 504.
    2. Huang, Rocco R., 2008. "Tolerance for uncertainty and the growth of informationally opaque industries," Journal of Development Economics, Elsevier, vol. 87(2), pages 333-353, October.
    3. Barham, Bradford L. & Chavas, Jean-Paul & Fitz, Dylan & Salas, Vanessa Ríos & Schechter, Laura, 2014. "The roles of risk and ambiguity in technology adoption," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 204-218.
    4. Puri, Manju & Robinson, David T., 2007. "Optimism and economic choice," Journal of Financial Economics, Elsevier, vol. 86(1), pages 71-99, October.
    5. Jean-Paul Chavas, 2012. "On learning and the economics of firm efficiency: a state-contingent approach," Journal of Productivity Analysis, Springer, vol. 38(1), pages 53-62, August.
    6. Ward, Patrick S. & Singh, Vartika, 2013. "Risk and Ambiguity Preferences and the Adoption of New Agricultural Technologies: Evidence from Field Experiments in Rural India," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150794, Agricultural and Applied Economics Association.
    7. Elaine M. Liu, 2008. "Time to Change What to Sow: Risk Preferences and Technology Adoption Decisions of Cotton Farmers in China," Working Papers 1064, Princeton University, Department of Economics, Industrial Relations Section..
    8. Tsuyoshi Hatori & Hayeong Jeong & Kiyoshi Kobayashi, 2014. "Regional learning and trust formation," Chapters,in: Knowledge, Innovation and Space, chapter 8, pages 180-212 Edward Elgar Publishing.
    9. David Dequech, 2008. "Varieties of uncertainty: a survey of the economic literature," Anais do XXXVI Encontro Nacional de Economia [Proceedings of the 36th Brazilian Economics Meeting] 200807211223070, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    10. Takanori Adachi & Takao Asano, 2011. "Entrepreneurial Choice and Knightian Uncertainty with Borrowing Constraints," KIER Working Papers 803, Kyoto University, Institute of Economic Research.
    11. Luca Rigotti & Matthew Ryan & Rhema Vaithianathan, 2011. "Optimism and firm formation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 46(1), pages 1-38, January.
    12. Jim Engle-Warnick & Javier Escobal & Sonia Laszlo, 2006. "Risk preference, ambiguity aversion and technology choice: Experimental and survey evidence from rural peru," Artefactual Field Experiments 00042, The Field Experiments Website.
    13. Elaine Meichen Liu, 2008. "Time to Change What to Sow: Risk Preferences and Technology Adoption Decisions of Cotton Farmers in China," Working Papers 1064, Princeton University, Department of Economics, Industrial Relations Section..
    14. Jim Engle-Warnick & Javier Escobal & Sonia Laszlo, 2007. "Ambiguity Aversion As A Predictor Of Technology Choice: Experimental Evidence From Peru," Departmental Working Papers 2007-04, McGill University, Department of Economics.
    15. Schunk Daniel, 2009. "What Determines Household Saving Behavior: An Examination of Saving Motives and Saving Decisions 06.01.2009," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 229(4), pages 467-491, August.
    16. Haitham Alhnaity & Armanurah Bint Mohamad & Awaniskuishak Awaniskuishak, 2016. "Entrepreneurial Thinking and Small Business performance: The Case of Beneficiary Companies of Jordanian Erada Program," Journal of Management and Sustainability, Canadian Center of Science and Education, vol. 6(3), pages 68-78, September.

    More about this item

    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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