Adverse Selection and Entrepreneurship in a Model of Development

Esteban Jaimovich ()

No 78, Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: This paper presents a theory in which risk-averse heterogeneously talented entrepreneurs are the key agents driving the process of development and modernisation. Entrepreneurial skills are private information, which prevents full risk sharing. In that setup, development to 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 that the informational asymmetries in the economy are endogenous to the process of development, as they are related to the heterogeneity in entrepreneurial skills required in the manufacturing activities.

Keywords: Adverse Selection; Development; Entrepreneurship; Risk-Sharing (search for similar items in EconPapers)
JEL-codes: O12 O16 D81 D82 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta, nep-dev, nep-ent and nep-ppm
Date: 2008
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Persistent link: http://EconPapers.repec.org/RePEc:cca:wpaper:78

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