Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1218: Entrepreneurial Optimism and Creative Destruction

Lars Persson () and Thomas Seiler
Additional contact information
Lars Persson: Research Institute of Industrial Economics (IFN), Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Thomas Seiler: Stockholm School of Economics

Abstract: We provide empirical evidence that uncertainty (rather than risk) and optimism are distinctive characteristics of high-impact entrepreneurial firms (recently listed firms) relative to old, incumbent firms. Based on this evidence, we construct an entrepreneurial entry predation model with uncertainty. We show that entrepreneurial optimism can mitigate problems associated with strong incumbents' attempts to protect markets using predatory threats. Entrepreneurial optimism can also create a strategic advantage for entrepreneurs since incumbents may react by being less aggressive in product market interactions, which will benefit not only the profitability of the entrepreneur's venture but also consumers via lower prices

Keywords: Uncertainty; Optimism; Entrepreneurial firms; Predation; Positive externalities; Automatic textual analysis

JEL-codes: L20; L26; M20; O30

43 pages, May 28, 2018

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