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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/38916
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| Title: | | The old-boy network and the quality of entrepreneurs  |
| Authors: | | Bac, Mehmet Inci, Eren |
| Issue Date: | | 2010 |
| Series/Report no.: | | CESifo working paper Industrial Organisation 3071 |
| Abstract: | | 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. While 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. |
| Subjects: | | entrepreneur network start-up financing |
| JEL: | | D82 D85 L26 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
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