Entrepreneurial competition and its impact on the aggregate economy |
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Authors: | Katsuya Takii |
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Institution: | (1) Osaka School of International Public Policy, Osaka University, 1-31, Machikameyama, Toyonaka, Osaka 560-0043, Japan |
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Abstract: | This paper models entrepreneurship as the entrepreneur’s information processing activity in order to predict changes in demand
and reallocate resources. The results show that allocative efficiency—and therefore aggregate productivity—increases through
intensified competition by entrepreneurs grasping at opportunities. This fierce competition leads to price reductions that
result in the improvement of measured aggregate productivity. The price reduction also forces relatively less able entrepreneurs
to become workers. As resources are then dealt with only by relatively talented entrepreneurs, this selection effect also
increases aggregate productivity. The paper also discusses how the selection effect influences the distribution of firm size.
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Keywords: | Entrepreneurship Information Prediction ability Competition Selection Allocative efficiency Productivity Firm size distribution |
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