Uncertainty, Asset Specificity, and Entrepreneurial Adaptation
18 Pages Posted: 5 Aug 2017
Date Written: June 6, 2015
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: Suggested Citation