Learning to Learn : Experimentation, Entrepreneurial Capital, and Development
This paper models an entrepreneur’s choice between investing in a safe activity or experimenting with a new risky one, and how much to invest in the “entrepreneurial capital” that would permit more effective use of the arriving information on the l...
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| Language: | English |
| Published: |
World Bank, Washington, DC
2021
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| Online Access: | http://documents.worldbank.org/curated/undefined/382521640023800097/Learning-to-Learn-Experimentation-Entrepreneurial-Capital-and-Development http://hdl.handle.net/10986/36782 |
| Summary: | This paper models an entrepreneur’s
choice between investing in a safe activity or experimenting
with a new risky one, and how much to invest in the
“entrepreneurial capital” that would permit more effective
use of the arriving information on the latter- how much to
learn how to learn. Optimal investment in entrepreneurial
capital depends the expected return on the risky activity.
It can lead to three learning regimes, two of which can
generate a development trap where firms and countries are
unable to assess the potential of newly arriving
technologies and hence grow more slowly. The first arises
purely because it is too expensive to learn to learn, the
second because the returns to the new activity are so high
that they obviate the need to distinguish between activities
and hence invest in entrepreneurial capital. The paper draws
on historical evidence to show how the model offers insights
into three understudied features of the industrialization
process in the Western Hemisphere at the beginning of the
20th century: the disproportionate influence of
immigrant/foreign entrepreneurs in driving industrialization
in Latin America; the emergence of selective exceptions to
this pattern, as well as episodes of entrepreneurial
retrogression; and the differing effects of similar economic
structures across countries that suggest the possibility of
a learning-displacing resource curse. The model can simulate
the respective decline and boom in the Chilean and US copper
industries at the turn of the century, arising either from
initially high relative returns or low initial endowments of
entrepreneurial capital in the latter. |
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