ENTREPRENEURIAL EFFICIENCY: THEORY

Authors

  • KATSUYA TAKII

    1. Osaka University
    Search for more papers by this author
    • I would like to thank Boyan Jovanovic, an anonymous referee and seminar participants at the University of Essex, the Kansai Macro Workshop, Osaka Prefecture University, OSIPP and Sogang University for helpful comments. Financial support from the Japanese Ministry of Education, Culture, Sports, Science and Technology (the Grant-in-Aid for Scientific Research) is gratefully acknowledged.


Abstract

This paper defines entrepreneurship as firms' activities to predict and adapt to changes in the environment, and derives an aggregate production function as a result of entrepreneurship. An increase in firms' prediction ability improves allocative efficiency in a competitive economy, but can reduce it when opportunities are distorted. It is shown that prediction ability can aggravate distortions in the presence of political risk. Because efficiency affects the total factor productivity of an economy, the model can explain how entrepreneurship influences total factor productivity.

Ancillary