Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 16, No. 4, pp.491-500
ISSN: 1225-0279 (Print)
Print publication date 30 Nov 2003
Received 18 Oct 2002 Revised 21 Jul 2004

Private Information and Endogenous Entry

Juan Carlos Bárcena-Ruiz ; Jesús Rubio
Lecturer, Departamento de Fundamentos del Analisis Economico I, Universidad del Pais Vasco, Avenida Lehendakari Aguirre 83, 48015 Bilbao, Spain, Tel: +34-946013829, Fax: +34-946013891
Lecturer, Departamento de Economia Aplicada III, Universidad del Pais Vasco, Avenida Lehendakari Aguirre 83, 48015 Bilbao, Spain, Tel: +34- 946013826, Fax: 34+946013754

JEL Classification: L2, L22, D82


We assume an organization made up of a principal and an agent in which the agent privately observes the state of nature. The agent can use his private information to set up a new firm (endogenous entry) with a positive fixed cost. We show that, in equilibrium, there is effective endogenous entry if the cost of entry the agent must bear to establish a new firm is low enough, as the agent has better information about the state of nature than the principal.


Endogenous entry, Private information


We thank referees for helpful comments. Financial support from Ministerio de Ciencia y Tecnolog a and FEDER (BEC2003-04430), UPV (HB-8238/ 2000) and UPV (Subvencion a grupos, 2001) is gratefully acknowledged.


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