Others have written before me about this paper by William Baumol. As it is very often the case with good papers, the main idea is quite simple. Scholars and policy makers are obsessed with entrepreneurship. They discuss prime examples such as Apple, Amazon and Google. And every local politician would love to have a Silicon Valley in his backyard. But at its heart, entrepreneurship is nothing more than people seeking economic opportunities. And, depending on the incentives a society provides, these businesses can be either socially valuable, a waste of resources, or, in the worst case, even destructive. Continue reading What Makes Entrepreneurs Valuable to Society?
Some time ago I wrote about a paper of mine (Hünermund et al., 2015) in which my coauthors and me develop a model to explain the occurrence of industry shakeouts. Shakeouts are a phenomenon which we encounter frequently in new industries. At one point in time, a large number of relatively small firms, previously operating in a market, becomes unsustainable. Within a short period of time a lot of firms exit and, eventually, the industry becomes dominated by a few large players. Our model explains this frequently observed pattern by technological factors that change over the lifespan of an industry. Cost advantages — because of more efficient production technologies — allow a few firm to take over and squeeze all others out of the market. Continue reading Economic History: Antibiotics