On Microeconomic Efficiency and Entrepreneurship under Bounded Rationality

Jean-Paul Chavas () and Bradford L. Barham

No 92142, Staff Papers from University of Wisconsin-Madison, Department of Agricultural and Applied Economics

Abstract: We present a dynamic model of economic behavior of an owner-operated firm under bounded rationality, and develop the implications for the assessment of economic efficiency and the understanding of entrepreneurship. Under bounded rationality, information about technology and market conditions is not perfectly known, creating the possibility for learning. Uncertainty is represented using a general state-contingent approach. Efficiency analysis is explored using a certainty equivalent measure, which is the sum of three parts: expected net income, a conditional value of information, and a risk premium (measuring the implicit cost of private risk bearing). The analysis yields critical insights about the role of learning in technical efficiency, allocative efficiency, and their implications for an improved understanding of entrepreneurship. These insights also provide micro-theoretic grounding to some classic debates (e.g., Leibenstein and Stigler) about what contributes to efficiency and technological progress in an economy.

Keywords: Risk; and; Uncertainty (search for similar items in EconPapers)
Pages: 36
Date: 2007-10
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/92142/files/stpap516.pdf (application/pdf)

Related works:
Working Paper: On Microeconomic Efficiency and Entrepreneurship under Bounded Rationality (2007)
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:ags:wisagr:92142

DOI: 10.22004/ag.econ.92142

Access Statistics for this paper

More papers in Staff Papers from University of Wisconsin-Madison, Department of Agricultural and Applied Economics Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().