Radical Uncertainty, Dynamic Competition and a Model of the Business Cycle

Angelo Fusari ()

MPRA Paper from University Library of Munich, Germany

Abstract: The influence of radical uncertainty and expectations on economic behaviour is indisputable, whether on entrepreneurship, innovation, investment, or the behaviour that contributes to the business cycle. It is rather surprising, therefore, to see widespread ambiguities in accounts of this crucial aspect of business life and, indeed, human existence. In particular, the frequent assumption ex hypothesis that radical uncertainty is non-measurable and non-explainable constitutes a major misunderstanding that obstructs the analysis of economic growth and development and, more generally, the study of economic dynamics. This essay first of all underlines the conceptual difference between uncertainty and expectations. It then establishes the possibility and delineates a method of measuring true or radical uncertainty by means of the monthly EU business tendency surveys. This method allows the derivation from these surveys of both more and better information than they at present provide, and also some indicators that are relevant mainly in an evolutionary perspective. In order to obtain a deeper understanding of such procedures, some applications have been carried out. A model of dynamic competition and the business cycle centred on the relation between innovation and uncertainty is then specified and tested using a FIML estimator.

Keywords: business tendency surveys; uncertainty; business cycle; innovation; simultaneous estimation (search for similar items in EconPapers)
JEL-codes: A1 A10 E0 E1 O3 P0 (search for similar items in EconPapers)
Date: 2013, Revised 2013-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in International Journal of Business and Management N° 12.8(2013): pp. 8-28

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:74015

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