Entrepreneurial Innovation, Economic Growth and the Stigma of Failure

ENTREPRENEURSHIP AND ITS ECONOMIC SIGNIFICANCE, BEHAVIOR AND EFFECTS, F. Colombus, ed., Nova Publishers, Forthcoming

Posted: 2 Sep 2008

See all articles by Patricia Crifo

Patricia Crifo

Ecole Polytechnique, Paris - Laboratoire d'Econometrie; Université Paris X Nanterre - Department of Economics; Center for Interuniversity Research and Analysis on Organization (CIRANO)

Hind Sami

University of Lyon - Lyon 2-COACTIS

Date Written: August 2008

Abstract

This contribution proposes a model of entrepreneurial activity highlighting a complex relationship between innovation and stigma of failure. Innovation decisions are examined in an endogenous growth model with horizontal differentiation in the spirit of Romer (1990). In our framework, entrepreneurs decide to invent a new good, given entrepreneurial talent and production costs, and face a risk of failure. If an entrepreneur fails in this innovation process, the firm remains on the market but bears a stigma of failure. We then analyze how the risk and the stigma of failure affects business dynamism and economic growth. We show that while a higher risk of failure is detrimental to innovation and growth, it positively affects the returns to entrepreneurial talent (or equivalently the comparative advantage of successful innovators). On the contrary, a higher stigma of failure inhibits entrepreneurial creation but might be beneficial for growth. These results are supported by recent empirical evidence in OECD countries.

Keywords: Entrepreneurship, innovation, stigma

JEL Classification: M13, O33, Z13, O41

Suggested Citation

Crifo, Patricia and Sami, Hind, Entrepreneurial Innovation, Economic Growth and the Stigma of Failure (August 2008). ENTREPRENEURSHIP AND ITS ECONOMIC SIGNIFICANCE, BEHAVIOR AND EFFECTS, F. Colombus, ed., Nova Publishers, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1261831

Patricia Crifo (Contact Author)

Ecole Polytechnique, Paris - Laboratoire d'Econometrie ( email )

Route de Saclay
Palaiseau, 91128
France

Université Paris X Nanterre - Department of Economics

Nanterre Cedex, 92001
France

Center for Interuniversity Research and Analysis on Organization (CIRANO)

2020 rue University, 25th floor
Montreal H3C 3J7, Quebec
Canada

Hind Sami

University of Lyon - Lyon 2-COACTIS ( email )

Faculté de Sciences Economiques et de Gestion
16, quai Claude Bernard
Lyon, 69007
France

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