1. Inicio keyboard_arrow_right
  2. Investigación keyboard_arrow_right
  3. Subsidizing Startups under Imperfect Information?


Artículo en revista académica

Subsidizing Startups under Imperfect Information?

  • person Javier Turén

    David Melcagni

  • class Journal of Monetary Economics, Volume 139, October 2023, pages 93-109

Abstract: How is firm creation affected by imperfect information? Our model of rational inattention generates inefficient entry and labor misallocation, because startups make error-prone decisions. Learning decisions of prospective entrepreneurs alter the effects of lump-sum transfers to startups: the total employment gain is amplified due to an unintended increase in inefficient entry, most entrants hire fewer workers, and misallocation goes up. The transfer changes the learning incentives and makes even productive startups lean towards more conservative hiring. We show that this novel information channel works against well-known mechanisms, and thus can help reconcile recent empirical evidence on startup policies.