Economics Seminar - Learning to Learn: Experimentation, Entrepreneurial Capital, and Development

Abstract: This paper argues for “entrepreneurial capital” as a critical determinant of economic growth. It models an entrepreneur’s choice between investing in a safe activity or experimenting with a new risky one, and how much to invest in the ability to more effectively use arriving information on the latter, entrepreneurial capital. Optimal investment depends on the cost, the distance from the entrepreneurial frontier, and non- non-monotonically, on the expected return on the risky activity, leading to three learning regimes including a potential resource curse. The model is supported by historical evidence from the US and Latin America and simulations of the relative decline of the Chilean versus US copper industries across the 20th century.