A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion Export

@article{citeulike:206033, abstract = {We construct a theory of competitive equilibrium under uncertainty using an entrepreneurial model with historical roots in the work of Knight in the 1920s. Individuals possess labor which they can supply as workers to a competitive labor market or use as entrepreneurs in running a firm. All entrepreneurs have access to the same risky technology and receive all profits from their firms. In the equilibrium, more risk averse individuals become workers while the less risk averse become entrepreneurs. Less risk averse entrepreneurs run larger firms and economy-wide increases in risk aversion reduce the equilibrium wage. A dynamic process of firm entry and exit is stable. The equilibrium is efficient only if all entrepreneurs are risk neutral. Inefficiencies in the number of firms and in the allocation of labor to firms are traced to inefficiencies in the risk allocation caused by institutional constraints on risk trading. In a second best sense which accounts for these constraints, the equilibrium is efficient.}, author = {Kihlstrom, Richard E. and Laffont, Jean-Jacques}, citeulike-article-id = {206033}, citeulike-linkout-0 = {http://www.jstor.org/stable/1831005}, journal = {The Journal of Political Economy}, keywords = {empirical\_io}, number = {4}, pages = {719--748}, posted-at = {2005-05-20 17:05:08}, priority = {2}, title = {A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion}, url = {http://www.jstor.org/stable/1831005}, volume = {87}, year = {1979} }

TY - JOUR ID - citeulike:206033 L3 - citeulike-article-id:206033 N2 - We construct a theory of competitive equilibrium under uncertainty using an entrepreneurial model with historical roots in the work of Knight in the 1920s. Individuals possess labor which they can supply as workers to a competitive labor market or use as entrepreneurs in running a firm. All entrepreneurs have access to the same risky technology and receive all profits from their firms. In the equilibrium, more risk averse individuals become workers while the less risk averse become entrepreneurs. Less risk averse entrepreneurs run larger firms and economy-wide increases in risk aversion reduce the equilibrium wage. A dynamic process of firm entry and exit is stable. The equilibrium is efficient only if all entrepreneurs are risk neutral. Inefficiencies in the number of firms and in the allocation of labor to firms are traced to inefficiencies in the risk allocation caused by institutional constraints on risk trading. In a second best sense which accounts for these constraints, the equilibrium is efficient. IS - 4 JF - The Journal of Political Economy EP - 748 TI - A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion VL - 87 SP - 719 KW - empirical_io AU - Kihlstrom, Richard AU - Laffont, Jean-Jacques PY - 1979/// UR - http://www.jstor.org/stable/1831005 ER -