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Biais, Bruno
, Rochet, Jean-Charles and Woolley, Paul
(2013)
The dynamics of innovation and risk.
TSE Working Paper, n. 13-448
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Abstract
We study the dynamics of an innovative industry when agents learn about the likelihood of negative shocks. Managers can exert risk-prevention effort to mitigate the consequences of shocks. If no shock occurs, confidence improves, attracting managers to the innovative sector. But, when condence becomes high, inefficient managers exerting low risk-prevention effort also enter. This stimulates growth, while reducing risk-prevention. The longer the boom, the larger the losses if a shock occurs. While these dynamics arise in the first-best, asymmetric information generates excessive entry of inefficient managers, earning informational rents, inflating the innovative sector and increasing its vulnerability.
| Item Type: | Monograph (Working Paper) |
|---|---|
| Language: | English |
| Date: | October 2013 |
| Subjects: | B- ECONOMIE ET FINANCE |
| Divisions: | TSE-R (Toulouse) |
| Site: | UT1 |
| Date Deposited: | 09 Jul 2014 17:40 |
| Last Modified: | 02 Apr 2021 15:48 |
| OAI Identifier: | oai:tse-fr.eu:27746 |
| URI: | https://publications.ut-capitole.fr/id/eprint/15775 |
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