Monopolistic Competition and Entrepreneurial RiskRTaking -Too many Cooks Spoil the Broth (but Everyone is better off) -

Christiane Clemens

Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät

Abstract: This paper investigates the effects of monopolistic competition on entrepreneurial riskRtaking in a general equilibrium model. In this context, occupational choice of risk averse agents is biased towards rm ownership. In this case, the inef ciencies due to the presence of nonRdiversi able risk are partly compensated by inef ciencies arising from imperfect competition. Comparative static results show that too many rms remain in the market for an increase in the degree of risk aversion, thereby mutually deteriorating pro t opportunities, which provides an explanation for the empirically observed comparably low risk premium on entrepreneurial risk.

Keywords: economics of uncertainty; occupational choice; monopolistic competition (search for similar items in EconPapers)
JEL-codes: D4 D5 D8 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2004-10
New Economics Papers: this item is included in nep-com, nep-ent and nep-mic
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