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All entrepreneurial productivity increases are not created equal
Author(s) -
Bose Arup,
Pal Debashis,
Sappington David E. M.
Publication year - 2016
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/soej.12032
Subject(s) - productivity , welfare , entrepreneurship , business , economics , quality (philosophy) , industrial organization , labour economics , public economics , economic growth , market economy , finance , philosophy , epistemology
We examine the impact of productivity increases in a setting where wealth‐constrained entrepreneurs are privately informed about whether their project will succeed with high ( p H ) or low ( p L ) probability. Not surprisingly, many productivity increases (e.g., an increase in p H ) generate gains for entrepreneurs and/or venture capitalists. However, some productivity increases (e.g., an increase in p L ) can generate widespread losses. Furthermore, entrepreneurs with low‐productivity projects can benefit more from policies that increase the productivity of high‐quality projects than from policies that increase their own productivity. Therefore, the design of policy to enhance welfare in the entrepreneurial sector can entail important subtleties.