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Heterogeneous Entrepreneurs, Government Quality and Optimal Industrial Policy

Author

Listed:
  • Michele Di Maio

    (PARTHENOPE - Università degli Studi di Napoli “Parthenope” = University of Naples)

  • Giorgio Fabbri

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

  • Vincenzo Lombardo

    (PARTHENOPE - Università degli Studi di Napoli “Parthenope” = University of Naples)

Abstract

This paper presents a theoretical model exploring the effects of industrial policy (IP) when entrepreneurs are characterized by different ability levels and sectors are heterogeneous as for their profitability and social externalities generated. The optimal structure of IP in terms of monetary transfers is shown to crucially depend on the distribution of entrepreneurs abilities. Moreover, we find that IP increases aggregate welfare under very general conditions, also in the presence of Government failures. In an extension of the model, we consider the case in which the Government can use also the provision of business training to entrepreneurs as an additional instrument of IP. Based on these results, policy implication for industrial policy in developing countries are discussed.

Suggested Citation

  • Michele Di Maio & Giorgio Fabbri & Vincenzo Lombardo, 2016. "Heterogeneous Entrepreneurs, Government Quality and Optimal Industrial Policy," Working Papers halshs-01340051, HAL.
    • Handle: RePEc:hal:wpaper:halshs-01340051
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01340051
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    References listed on IDEAS

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    1. Harrison, Ann & Rodríguez-Clare, Andrés, 2010. "Trade, Foreign Investment, and Industrial Policy for Developing Countries," Handbook of Development Economics, in: Dani Rodrik & Mark Rosenzweig (ed.), Handbook of Development Economics, edition 1, volume 5, chapter 0, pages 4039-4214, Elsevier.
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    Cited by:

    1. Thomas Hellmann & Veikko Thiele, 2019. "Fostering Entrepreneurship: Promoting Founding or Funding?," Management Science, INFORMS, vol. 67(6), pages 2502-2521, June.

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    More about this item

    Keywords

    industrial policy; entrepreneurs; heterogeneous abilities; training;
    All these keywords.

    JEL classification:

    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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