Constrained inefficiency of competitive entrepreneurship

Sakai Ando and Misaki Matsumura

Journal of Mathematical Economics, 2020, vol. 88, issue C, 98-103

Abstract: We study the constrained efficiency of a competitive entrepreneurship model that features the occupation choice between entrepreneurs and workers. It is shown that, even when (1) the only friction is uninsurable entrepreneurial risks and (2) agents are risk-averse, the competitive market can generate too many entrepreneurs. We present a sufficient statistic that determines the constrained inefficiency and its direction (whether market generates too many entrepreneurs or too few) by exploiting the unique feature of the model where the equilibrium is characterized by an indifference condition instead of a marginal condition. The framework is also pedagogically useful to understand constrained efficiency analysis at intuitive level.

Keywords: Constrained efficiency; Competitive entrepreneurship; Occupation choice; Incomplete markets (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:88:y:2020:i:c:p:98-103

DOI: 10.1016/j.jmateco.2020.03.005

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