The old-boy network and the quality of entrepreneurs

Baç, Mehmet and İnci, Eren (2010) The old-boy network and the quality of entrepreneurs. Journal of Economics & Management Strategy, 19 (4). pp. 889-918. ISSN 1058-6407

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We study a model of network formation and start-up financing with endogenous entrepreneurial type distribution. A hub firm admits members to its network based on signals about entrepreneurs' types. Network membership is observable, which allows lenders to offer different interest rates to network and stand-alone entrepreneurs. We show that a network outcome can display a smaller number of high-type entrepreneurs even though the network is neither nepotistic nor informationally disadvantaged. Although a welfare-improving network can emerge as a technically stable or unstable equilibrium, one that decreases welfare is always formed by a technically unstable equilibrium. However, the adverse welfare effects of a network and its corresponding type configuration may persist because ex post high-type entrepreneurs prefer to stay high type whereas those who wish to become high type may need some time to react.
Item Type: Article
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Arts and Social Sciences > Academic programs > Economics
Faculty of Arts and Social Sciences
Depositing User: Eren İnci
Date Deposited: 25 Nov 2010 21:31
Last Modified: 29 Jul 2019 11:42

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