Entrepreneurial Boldness and Excessive Investment

Isabelle Brocas and Juan D. Carrillo

Journal of Economics & Management Strategy, 2004, vol. 13, issue 2, 321-350

Abstract: We analyze investment by a population of hyperbolic discounting entrepreneurs. In order to avoid inefficient procrastination, agents with good prospects about their chances of success may choose to forego free information and to invest boldly. This explains an excessive level of investment in the economy. Building on this observation, we show that low risk‐free interest rates favor bold entrepreneurship and entry mistakes. Furthermore, public intervention can be socially desirable: Forcing agents to acquire information before deciding whether to invest may reduce competitive interest rates and may be beneficial for all individuals in the economy. And thus the native hue of resolution Is sicklied o'er with the pale cast of thought, And enterprises of great pith and moment With this regard their currents turn awry, And lose the name of action. Hamlet, Act 3: Scene 1.

Date: 2004
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https://doi.org/10.1111/j.1530-9134.2004.00013.x

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jemstr:v:13:y:2004:i:2:p:321-350

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