Innovative entreprenuership under uncertainty

Abstract

Purpose- This paper analyzes the economic activity of innovative entrepreneurship under uncertainty. We examine the profit maximization model of innovative firm under two kinds of uncertainties. The first kind of uncertainty pertains to market conditions. Erratic behavior of future prices creates market uncertainty. Methodology- This uncertainty is at least partly resolved by rational expectations hypothesis. But repercussions of market imperfections still loom large in the background of theoretical framework. The second kind of uncertainty is caused by technological changes and the patterns of innovations. We use the black-box approach methodology to production function and then improve it with a learning model. Findings- The pace and space of innovation adoption is retarded and narrowed by technological uncertainties. This problem is tackled by neoclassical innovation models to some extent. In particular, endogenous growth models and the industrial dynamics model attempt to endogenize the innovation and technology under rational expectations. Conclusion- But these models provide incomplete insights for they do not deal with learning behavior of innovative entrepreneurs. We propose an alternative learning model which takes into account the adaptive and imitative behavior of individual innovators whose economic actions matter in the general framework of real life economics.