The non-productive entrepreneurial process

A large literature explores the importance of entrepreneurship as the catalyst of economic progress. In contrast, this paper argues that entrepreneurs are the driver of economic stagnation. We analyze the non-productive entrepreneurial process and discuss three channels through which non-productive activities have a multiplier effect culminating in economic decline and stagnation. Drawing on examples of non-productive entrepreneurship from both underdeveloped and developed countries, we provide insight into why economic stagnation persists in the former and why economic decline can occur in the latter.     

Regulatory costs on entrepreneurship and establishment employment size

In this article, we examine how the level of regulation affects the size distribution of businesses. To the extent that regulation functions as a fixed cost, it should lead to larger firm size. However, regulations may also lead to smaller establishments with firms outsourcing regulated activities or staying small to take advantage of state exemptions for small businesses from regulations. We empirically examine the relationship between the size distribution of establishments and the level of regulation using state- and industry-level panel data from 1992 to 2004. Our results suggest that regulation decreases the proportion of zero employee and 1–4 employee establishments. The proportion of establishments in the 5–9 employee range generally increases with the level of regulation. Thus, regulation appears to operate as a fixed cost causing establishments to be larger.     

Unanimous subjective probabilities

This note shows that if the space of events is sufficiently rich and the subjective probability function of each individual is non-atomic, then there is a σ-algebra of events over which everyone will have the same probability function, and moreover, the range of this common probability is the entire unit interval.      

Optimal Taxation in a Federal System of Governments

This paper demonstrates that the optimal structure of taxation in a federal system of governments is one in which only lower level governments are allowed to tax, and the higher level of government receives its revenues as contributions from the lower level governments. The central inefficiency created when multiple levels are allowed to tax is a revenue externality between governments that is analogous to a common pool problem. A federal system with multiple levels of taxing authority results in combined tax rates higher than would be optimal, a higher excess burden of taxation, and an inefficiency bias in government spending.     

Testing Baumol: Institutional quality and the productivity of entrepreneurship

Baumol's [Baumol, W.J., 1990. Entrepreneurship: productive, unproductive and destructive. Journal of Political Economy 98 (5), 893–921] theory of productive and unproductive entrepreneurship is a significant recent contribution to the economics of entrepreneurship literature. He hypothesizes that entrepreneurial individuals channel their effort in different directions depending on the quality of prevailing economic, political, and legal institutions. This institutional structure determines the relative reward to investing entrepreneurial energies into productive market activities versus unproductive political and legal activities (e.g., lobbying and lawsuits). Good institutions channel effort into productive entrepreneurship, sustaining higher rates of economic growth. I test and confirm Baumol's theory, and discuss its significance to the literature, economic prosperity, and policy reform.     

Strategic stability and uniqueness in signaling games

A class of signaling games is studied in which a unique Universally Divine equilibrium outcome exists. We identify a monotonicity property under which a variation of Universal Divinity is generically equivalent to strategic stability. Further assumptions guarantee the existence of a unique Universally Divine outcome.     

Freedom,barriers to entry,entrepreneurship, and economic progress

While entrepreneurs benefit from unrestricted free entry into markets, they have a time-inconsistent incentive to lobby for government entry restrictions once they become successful. Bad political institutions yield to these demands, and growing barriers are placed on domestic and international competition. Good institutions do not, and this effort is instead channeled toward further wealth creation. We find that productive entrepreneurship depends on both the freedom to succeed and discipline of failure that free markets provide. Trade barriers result in fewer combinations of goods and inputs attempted, and less productive entrepreneurial resource use. We also provide evidence on the value of business failure.

A Reexamination of Yardstick Competition

This paper shows that yardstick competition does not assist a regulator when lump-sum transfers are not costly and the regulator does not care about the distribution of income. Yardstick competition may discourage investment that would make efficient operation possible. The paper characterizes optimal regulatory schemes in a simple model and demonstrates that it may be optimal to limit the amount of information available to the regulator.