Temple University reports research in economic dynamics & control
2009 JUL 17 - (VerticalNews.com) -- "This paper proposes a model of Schumpeterian endogenous growth incorporating the role of market imperfections that exist due to adverse selection between investors that finance R&D and entrepreneurs that perform R&D. There is a distribution of agents indexed by a skill factor that determines one's average productivity at performing research," investigators in the United States report.
"An entrepreneur starts-up a research venture by borrowing from an investor that funds R&D so as to invent new goods. Skill is private information, creating an adverse selection problem for the investor who designs a truth-telling mechanism. We show that an increase in the mean skill enhances growth as it leads to greater R&D productivity and investment; while an increase in the dispersion of the skill distribution dampens growth as it makes the adverse selection problem between investors and entrepreneurs more severe. The growth rate would double in the absence of adverse selection," wrote J.M. Plehndujowich and colleagues, Temple University.
The researchers concluded: "The R&D investment of the average size firm must be subsidized threefold for the negative adverse selection effect to be nullified. We provide U.S. industry-level and European sector-level evidence in favor of the positive scale effect and negative adverse selection effect using the firm size distribution (FSD) to proxy for the entrepreneurial skill distribution."
Plehndujowich and colleagues published their study in the Journal of Economic Dynamics & Control (Endogenous growth and adverse selection in entrepreneurship. Journal of Economic Dynamics & Control, 2009;33(7):1419-1436).
For additional information, contact J.M. Plehndujowich, Temple University, Fox School Business, Philadelphia, PA 19122, USA.
The publisher of the Journal of Economic Dynamics & Control can be contacted at: Elsevier Science BV, PO Box 211, 1000 AE Amsterdam, Netherlands.
Keywords: United States, Philadelphia, Life Sciences, Journal of Economic Dynamics & Control, Temple University.
This article was prepared by VerticalNews Economics editors from staff and other reports. Copyright 2009, VerticalNews Economics via VerticalNews.com.