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Entrepreneurial Innovation

Author

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  • Rigotti, Luca
  • Ryan, Matthew
  • Vaithianathan, Rema

Abstract

This paper presents an equilibrium model in which the process of firm formation and technology adoption is endogenous. Individuals decide whether to work in an existing firm for a posted wage, or to establish a new firm. Entrepreneurs hire a single worker and choose a production technology from a fixed set. The stochastic properties of different technologies are known with different, and exogenously specified, degrees of precision. We use Dempster's (967) lower probabilities to characterize these differences in objective precision of risk information. Individuals in the model are heterogeneous with respect to their tolerance of imprecise risk. This heterogeneity determines which technologies are adopted in equilibrium, the number of firms adopting each active technology, firm structure (risk attitudes of owner and worker), and the wage differentials across firms adopting different technologies. We can also parametrically alter the risk precision associated with a given technology to examine the effect on equilibrium. This comparative static exercise suggests an explanation for the commonly observed S-shaped diffusion profile for successful innovations.

Suggested Citation

  • Rigotti, Luca & Ryan, Matthew & Vaithianathan, Rema, 2001. "Entrepreneurial Innovation," Department of Economics, Working Paper Series qt508109h4, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    • Handle: RePEc:cdl:econwp:qt508109h4
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    References listed on IDEAS

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    Cited by:

    1. Tsuyoshi Hatori & Hayeong Jeong & Kiyoshi Kobayashi, 2014. "Regional learning and trust formation," Chapters, in: Charlie Karlsson & Börje Johansson & Kiyoshi Kobayashi & Roger R. Stough (ed.), Knowledge, Innovation and Space, chapter 8, pages 180-212, Edward Elgar Publishing.
    2. 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].
    3. Takanori Adachi & Takao Asano, 2011. "Entrepreneurial Choice and Knightian Uncertainty with Borrowing Constraints," KIER Working Papers 803, Kyoto University, Institute of Economic Research.
    4. Schunk, Daniel, 2007. "What determines the saving behavior of German households? : an examination of saving motives and saving decisions," Papers 07-10, Sonderforschungsbreich 504.
    5. 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.
    6. 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.
    7. Puri, Manju & Robinson, David T., 2007. "Optimism and economic choice," Journal of Financial Economics, Elsevier, vol. 86(1), pages 71-99, October.
    8. 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.
    9. 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.
    10. 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..
    11. 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.
    12. 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.
    13. 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.
    14. Elaine M. Liu, 2013. "Time to Change What to Sow: Risk Preferences and Technology Adoption Decisions of Cotton Farmers in China," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1386-1403, October.
    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.

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    More about this item

    Keywords

    Occupational Choice; Entrepreneurship; Imprecise Risk; Non-expected Utility; Innovation;
    All these keywords.

    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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