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Adverse Selection and Entrepreneurship in a Model of Development
Author(s) -
Jaimovich Esteban
Publication year - 2010
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/j.1467-9442.2009.01595.x
Subject(s) - entrepreneurship , economics , modernization theory , adverse selection , process (computing) , information asymmetry , private information retrieval , selection (genetic algorithm) , industrial organization , business , microeconomics , economic growth , computer science , finance , computer security , artificial intelligence , operating system
This paper presents a theory in which talented entrepreneurs are identified as the key agents driving the process of development and modernisation. Entrepreneurial skills are private information, which prevents full risk sharing. Development into a modern industrial economy might fail to take place, since potentially talented entrepreneurs may refrain from taking on the entrepreneurial risks as a way to avoid income shocks. An interesting feature of the model is the fact that the informational asymmetries are endogenous to the process of development, as they are related to the heterogeneity in entrepreneurial skills required in the manufacturing activities.