Fiscal Policy and Entrepreneurship

This paper reexamines the effect of expansionary fiscal policy on real GDP in the presence of entrepreneurship, which is defined as firms' activities to predict and adapt to changes in consumers' tastes. As government expenditure cannot reflect changes in consumers' tastes, it weakens the social role of the firms' ability to process local information for predicting the changes. Hence, government expenditure cannot perfectly substitute for private consumption. It is shown that expansionary fiscal policy can lower real GDP when idiosyncratic risk and the substitutability of goods are large, and when firms have a strong ability to predict changes in consumer tastes. In addition, this paper shows that expansionary fiscal policy discourages firms from investing in activities that aid prediction in the short run. However, expansionary fiscal policy does not influence investment in prediction ability in the long run.

Fiscal Policy and Entrepreneurship

This paper reexamines the effect of expansionary fiscal policy on the real GDP in the presense of entrepreneurship - firms' activities to predict and react to changes in consumers' taste. The existence of partial crowding out in this paper generates a trade off between private consumption and government expenditure. Since goverment expenditure can not reflect changes in consumers' taste, it reduces the importance of firms' ability to process local information for predicting changes in consumers' taste. It is shown that expansionary fiscal policy can lower the real GDP when idiosyncratic risk and the substitutability of goods are large, and firms have great ability to predict the changes. This paper also shows that expansionary fiscal policy discourgages investment in prediction ability in the short run, but does not affect it in the long runEntrepreneurship, Fiscal Policy

Entrepreneurial Efficiency: Theory

This paper models firms' entrepreneurial ability according to their ability to predict changes in productivity (i.e., their prediction ability), 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 (TFP) of an economy, the model can explain how entrepreneurship influences TFP.entrepreneurship, prediction ability, total factor productivity, allocative efficiency, aggregate production function.

Entrepreneurial Competition and Its Impact on the Aggregate Economy

This paper models entrepreneurship as the entrepreneur's information processing activity in order to predict changes in demand and reallocate resources. The results show that allocative efficiency---and therefore aggregate productivity---increases through intensified competition by entrepreneurs grasping at opportunities. This fierce competition leads to price reductions that result in the improvement of measured aggregate productivity. The price reduction also forces relatively less able entrepreneurs to become workers. As resources are then dealt with only by relatively talented entrepreneurs, this selection effect also increases aggregate productivity. The paper also discusses how the selection effect influences the distribution of firm size.

Entrepreneurial Efficiency: An Empirical Framework and Evidence

This paper examines a particular aspect of entrepreneurship, namely firms' activities in adapting to idiosyncratic environmental changes by appropriately reallocating resources. It presents an empirical framework that examines the social value of firms' abilities to predict and adapt to the movement of idiosyncratic shocks. Using the method, the quantitative effect of firms' prediction ability on Total Factor Productivity (TFP) is investigated using data from Japan's Census of Manufacturing.entrepreneurship, prediction ability, total factor productivity, allocative efficiency, aggregate production function.

Prediction Ability and Investment under Uncertainty

This paper provides a theoretical framework for analyzing one of the most important intangible assets in a firm: the ability to predict profitable investment opportunities. This paper shows theoretically how to measure the accuracy of information used to predict opportunities, and estimates the value of information in the context of a firm's investment decision problem. Empirical study confirms the theoretical results of the model: (1) prediction ability has a large positive impact on firm's expected profits; and (2) prediction ability increases the mean and the variance of the growth rate of a firm's capital stock.

The Value of Adaptability

This paper examines a firm's ability to respond correctly to an unexpected change in the environment (i.e., its adaptability). We develop a model that allows for empirical examination of the impact of a firm's adaptability on its expected profits. The theory shows that a firm's adaptability can be estimated by the squared correlation between an unexpected change and the firm's reaction. The estimates show that adaptability has a large positive impact on the average profit rate and the market value of a firm. We also find that an increase in risk is correlated with a rise in adaptability.

On the Role of Job Assignment in a Comparison of Education Systems

This paper reexamines how differences in systems for financing education influence GDP by highlighting a neglected function of education policy: it affects the magnitude of gains from job assignment. When more productive jobs demand more skill, privately financed education can increase productivity gains from matching between jobs and skill by increasing the availability of highly educated people. This differs from the standard argument that publicly financed education increases the total amount of human capital by equalizing educational opportunities. It is shown that if job opportunities have large variations in productivity, education policy may face a serious efficiency--equity trade-off.Job assignment, Human capital, Education system

Does the Diversity of Human Capital Increase GDP? A Comparison of Education Systems

This paper examines how different education systems affect GDP by influencing the diversity of human capital. We construct an overlapping generation model in which agents are heterogeneous in income and innate ability, and the final goods are produced with differentiated intermediate goods. We analyze an economy in which an income distribution converges to a stationary distribution. It is shown that the diversity of human capital induced by income inequality always lowers the GDP of the next period, while the diversity of human capital induced by heterogeneous ability can increase GDP, if the produced intermediate goods are sufficiently substitutable and firms have a large span of control. Hence, as public education equalizes education resources across households, it mitigates the negative effect of income inequality on GDP, while the effects of ability tracking crucially depend on the production structure of the economy.Span of control, Complementarities, Human capital, Ability tracking