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Entrepreneurial risk, investment and innovation

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Abstract

In this paper I develop a general equilibrium model with risk averse entrepreneurial firms and with public firms. The model predicts that an increase in uncertainty reduces the propensity of entrepreneurial firms to innovate, while it does not affect the propensity of public firms to innovate. Furthermore, it predicts that the negative effect of uncertainty on innovation is stronger for the less diversified entrepreneurial firms, and is stronger in the absence of financing frictions in the economy. In the second part of the paper I test these predictions on a dataset of small and medium Italian manufacturing firms.

Suggested Citation

  • Andrea Caggese, 2006. "Entrepreneurial risk, investment and innovation," Economics Working Papers 1011, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:1011
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    Citations

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    Cited by:

    1. claudio Michelacci & Fabiano Schivardi, 2008. "Does Idiosyncratic Business Risk Matter?," EIEF Working Papers Series 0813, Einaudi Institute for Economics and Finance (EIEF), revised Jul 2008.
    2. Janti Gunawan & Kym Fraser, 2016. "Exploring young and green entrepreneurship in Indonesia: An introduction," Journal of Asian Business Strategy, Asian Economic and Social Society, vol. 6(9), pages 185-194, September.
    3. Francisco Covas & Shigeru Fujita, 2007. "Private risk premium and aggregate uncertainty in the model of uninsurable investment risk," Working Papers 07-30, Federal Reserve Bank of Philadelphia.
    4. Rui Castro & Gian Luca Clementi & Yoonsoo Lee, 2015. "Cross Sectoral Variation in the Volatility of Plant Level Idiosyncratic Shocks," Journal of Industrial Economics, Wiley Blackwell, vol. 63(1), pages 1-29, March.
    5. repec:eee:pacfin:v:46:y:2017:i:pa:p:158-176 is not listed on IDEAS
    6. Morikawa, Masayuki, 2016. "Business uncertainty and investment: Evidence from Japanese companies," Journal of Macroeconomics, Elsevier, vol. 49(C), pages 224-236.
    7. Hvide, Hans K. & Panos, Georgios A., 2014. "Risk tolerance and entrepreneurship," Journal of Financial Economics, Elsevier, vol. 111(1), pages 200-223.
    8. Ghiglino, Christian & Tabasso, Nicole, 2016. "Risk aversion in a model of endogenous growth," Journal of Mathematical Economics, Elsevier, vol. 64(C), pages 30-40.
    9. Rui Castro & Gian Luca Clementi & Yoonsoo Lee, 2008. "Cross-sectoral variation in firm-level idiosyncratic risk," Working Paper 0812, Federal Reserve Bank of Cleveland.
    10. repec:bla:pacecr:v:21:y:2016:i:5:p:527-540 is not listed on IDEAS
    11. Andrea Caggese, 2015. "Financing Constraints, Radical versus Incremental Innovation, and Aggregate Productivity," Working Papers 865, Barcelona Graduate School of Economics.
    12. Dutz, Mark A., 2013. "Resource reallocation and innovation : converting enterprise risks into opportunities," Policy Research Working Paper Series 6534, The World Bank.
    13. Sari Pekkala Kerr & William R. Kerr & Tina Xu, 2017. "Personality Traits of Entrepreneurs: A Review of Recent Literature," NBER Working Papers 24097, National Bureau of Economic Research, Inc.
    14. Hyytinen, Ari & Pajarinen, Mika & Rouvinen, Petri, 2015. "Does innovativeness reduce startup survival rates?," Journal of Business Venturing, Elsevier, vol. 30(4), pages 564-581.

    More about this item

    Keywords

    Entrepreneurs; Entrepreneurship; Innovation; Idiosyncratic Risk; Uncertainty; Incomplete Markets;

    JEL classification:

    • 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
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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