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Confidence-Enhanced Economic Growth

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  • Chu Angus C

    (University of Michigan)

Abstract

This paper investigates one causal link between entrepreneurial overconfidence and economic growth in the US. Evidence from the social psychology literature suggests that this biased perception can lead to more successful outcomes for individuals. This paper examines the impacts of entrepreneurial overconfidence on the aggregate economy using an R&D-driven endogenous growth model. From this perspective, overconfidence is equivalent to a subsidy to R&D such that overconfident entrepreneurs are more likely to invest, and this increased R&D intensity is the driving force behind faster economic growth. In terms of social welfare, a small degree of overconfidence moves the market equilibrium level of R&D closer to the social optimum; however, a large degree of overconfidence may move the economy beyond the optimal level. Therefore, the welfare impact is ambiguous.

Suggested Citation

  • Chu Angus C, 2007. "Confidence-Enhanced Economic Growth," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-20, July.
    • Handle: RePEc:bpj:bejmac:v:7:y:2007:i:1:n:13
    DOI: 10.2202/1935-1690.1495
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    Citations

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    Cited by:

    1. Angus Chu & Guido Cozzi & Chih-Hsing Liao, 2013. "Endogenous fertility and human capital in a Schumpeterian growth model," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(1), pages 181-202, January.
    2. Chu, Angus C. & Fan, Haichao & Wang, Xilin, 2020. "Status-seeking culture and development of capitalism," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 275-290.
    3. Furukawa, Yuichi & Lai, Tat-kei & Sato, Kenji, 2019. "Love of Novelty: A Source of Innovation-Based Growth... or Underdevelopment Traps?," MPRA Paper 92915, University Library of Munich, Germany.
    4. Hof, Franz X. & Prettner, Klaus, 2019. "The quest for status and R&D-based growth," Journal of Economic Behavior & Organization, Elsevier, vol. 162(C), pages 290-307.
    5. FURUKAWA Yuichi & Tat-kei LAI & SATO Kenji, 2018. "Novelty-Seeking Traits and Innovation," Discussion papers 18073, Research Institute of Economy, Trade and Industry (RIETI).
    6. Furukawa, Yuichi & Lai, Tat-kei & Sato, Kenji, 2017. "Receptivity and Innovation," MPRA Paper 81536, University Library of Munich, Germany.

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