Technology Spillover and Entrepreneurial Behavior
32 Pages Posted: 17 Apr 2009 Last revised: 14 Mar 2011
Date Written: February 11, 2011
Abstract
In an entrepreneurial economy the fact that entrepreneurship is risky adds two important nuances to the question of optimal investment. First, the paper argues that ex-ante decision making requires ex-ante evaluation. Second, by definition of an entrepreneur, the new idea and risk assessment is in the mind of an individual and not yet in the knowledge stock of the economy. Evaluation should proceed from the information set of the entrepreneur. Using a general equilibrium framework, we find that the ability to specialize and trade in markets, even if competitive, has at least two positive incentives that can dominate the disincentive of not capturing the full external benefit of a new technology: (1) specialization and trade frees production time so innovators have more time to invest and (2) markets provide a way to share the risk of failure with trading counter-parties.
Keywords: technology externalities, entrepreneurial behavior, decision theory, innovation, economic growth
JEL Classification: C650, D010, D620, D610, D890, H410, L170, L260, O120, O300
Suggested Citation: Suggested Citation
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