The Value of Entrepreneurial Failures: Task Allocation and Career Concerns

54 Pages Posted: 1 Jun 2016

See all articles by Andrea Canidio

Andrea Canidio

IMT School for Advanced Studies, Lucca; INSEAD - Economics and Political Sciences

Patrick Legros

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); Northeastern University, department of economics; Centre for Economic Policy Research (CEPR)

Date Written: May 2016

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 assignment 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

JEL Classification: D83, J24, J62, L26, M13

Suggested Citation

Canidio, Andrea and Legros, Patrick, The Value of Entrepreneurial Failures: Task Allocation and Career Concerns (May 2016). CEPR Discussion Paper No. DP11295. Available at SSRN: https://ssrn.com/abstract=2786897

Andrea Canidio (Contact Author)

IMT School for Advanced Studies, Lucca

Piazza S. Ponziano, 6
Lucca, Lucca 55100
Italy

INSEAD - Economics and Political Sciences ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France

Patrick Legros

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium
+32 2 650 4219/3 (Phone)
+32 2 650 4475 (Fax)

Northeastern University, department of economics ( email )

301 Lake Hall
Boston, MA 02115
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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