The dynamics of innovation and risk

Bruno Biais, Jean Rochet and Paul Woolley

No 807, IDEI Working Papers from Institut d'Économie Industrielle (IDEI), Toulouse

Abstract: We study the dynamics of an innovative industry when agents learn about the likelihood of negative shocks. Managers can exert risk-prevention effort to mitigate the consequences of shocks. If no shock occurs, confidence improves, attracting managers to the innovative sector. But, when condence becomes high, inefficient managers exerting low risk-prevention effort also enter. This stimulates growth, while reducing risk-prevention. The longer the boom, the larger the losses if a shock occurs. While these dynamics arise in the first-best, asymmetric information generates excessive entry of inefficient managers, earning informational rents, inflating the innovative sector and increasing its vulnerability.

Date: 2013-10
New Economics Papers: this item is included in nep-cta, nep-ino, nep-mic and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://idei.fr/sites/default/files/medias/doc/wp/2013/wp_idei_807.pdf Full text (application/pdf)

Related works:
Journal Article: Dynamics of Innovation and Risk (2015)
Working Paper: Dynamics of Innovation and Risk (2015)
Working Paper: The dynamics of innovation and risk (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ide:wpaper:27747

Access Statistics for this paper

More papers in IDEI Working Papers from Institut d'Économie Industrielle (IDEI), Toulouse Contact information at EDIRC.
Bibliographic data for series maintained by (com@tse-fr.eu).