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The Value of Entrepreneurial Failures: Task Allocation and Career Concerns

Andrea Canidio () and Patrick Legros

No 11295, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The task assignment that maximizes present expected output is not necessarily the most informative about an agent's comparative advantage at different tasks. Entrepreneurs are free to choose their task assignment-workers in firms are not. When labor market frictions are low, any surplus generated by a more informative task as- signment is captured by the worker, and firms maximize present expected output in their task assignment. Hence, agents may choose entrepreneurship to learn their comparative advantage. The opposite holds when labor market frictions are large. The model establishes a causal relation between the degree of labor market frictions, the value of entrepreneurial failures, the level of entrepreneurial activity, the degree of firms' short-termism, and the rate of within-firm talent discovery. The theoretical correlations between these variables are consistent with the evidence available for the US and continental Europe.

Keywords: career concerns.; entrepreneurial failures; entrepreneurship; learning; organizational choice; task allocation (search for similar items in EconPapers)
JEL-codes: D83 J24 J62 L26 M13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-ent, nep-hrm, nep-ino and nep-sbm
Date: 2016-05
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