Uncertainty, Asset Specificity, and Entrepreneurial Adaptation

18 Pages Posted: 5 Aug 2017

See all articles by Timothy Terrell

Timothy Terrell

Wofford College; Mises Institute

Date Written: June 6, 2015

Abstract

Entrepreneurs’ exposure to economic uncertainty from regulation, monetary policy, and taxation is exacerbated by the inflexibility of capital asset commitments. Entrepreneurs adapt to uncertainty by reducing asset specificity. While the mainstream approach tends to focus on reduced aggregate investment resulting from uncertainty, the effects cannot be fully comprehended without appreciating the heterogeneity of the capital structure. Entrepreneurial adaptations, such as increasing the proportion of precautionary assets, reduce the roundaboutness of the production process, mitigating uncertainty but reducing economic growth. The emphases of the Austrian school on entrepreneurial judgment and heterogeneous capital clarify the connection between uncertainty and economic growth.

Keywords: Uncertainty, Asset Specificity, Business Cycle, Entrepreneurship

JEL Classification: B53, E22, E23, E32, L23, L26

Suggested Citation

Terrell, Timothy, Uncertainty, Asset Specificity, and Entrepreneurial Adaptation (June 6, 2015). Available at SSRN: https://ssrn.com/abstract=3013157 or http://dx.doi.org/10.2139/ssrn.3013157

Timothy Terrell (Contact Author)

Wofford College ( email )

429 N. Church St.
Spartanburg, SC 29303-3663
United States

HOME PAGE: http://www.wofford.edu

Mises Institute ( email )

Auburn, AL
United States

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