Entrepreneurial Risk, Investment and Innovation

60 Pages Posted: 25 Jul 2007

See all articles by Andrea Caggese

Andrea Caggese

Universitat Pompeu Fabra - Department of Economics and Business (DEB)

Date Written: December 2006

Abstract

In this paper I develop a general equilibrium model with risk averse entrepreneurial firms and with public firms. The model predicts that an increase in uncertainty reduces the propensity of entrepreneurial firms to innovate, while it does not affect the propensity of public firms to innovate. Furthermore, it predicts that the negative effect of uncertainty on innovation is stronger for the less diversified entrepreneurial firms, and is stronger in the absence of financing frictions in the economy. In the second part of the paper I test these predictions on a dataset of small and medium Italian manufacturing firms.

Keywords: Entrepreneurs, Entrepreneurship, Innovation, Idiosyncratic Risk, Uncertainty, Incomplete Markets

JEL Classification: M13, O31, D80

Suggested Citation

Caggese, Andrea, Entrepreneurial Risk, Investment and Innovation (December 2006). Available at SSRN: https://ssrn.com/abstract=1002869 or http://dx.doi.org/10.2139/ssrn.1002869

Andrea Caggese (Contact Author)

Universitat Pompeu Fabra - Department of Economics and Business (DEB) ( email )

Barcelona, 08005
Spain

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