Financial trading versus entrepreneurship: Competition for talent and negative feedback effects
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Date
2022-11Type
- Journal Article
ETH Bibliography
yes
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Abstract
Higher market efficiency due to informed financial trading is typically considered to have positive feedback effects on the real economy. We extend the seminal Grossman-Stiglitz (1980) model to highlight an important negative feedback effect from trading to entrepreneurial activity: information revelation via prices leads to a clustering of risk at entrepreneurs. This distorts agents’ occupational choice between financial trading and entrepreneurship, discouraging real economic activity. This negative feedback effect provides explanations for excessive financial trading and multiplicity of equilibria. Show more
Publication status
publishedExternal links
Journal / series
Quarterly Review of Economics and FinanceVolume
Pages / Article No.
Publisher
ElsevierSubject
Market efficiency; Asymmetric information; Allocation of talent; Occupational choice; Feedback effectsOrganisational unit
03729 - Gersbach, Hans / Gersbach, Hans
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ETH Bibliography
yes
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