Entrepreneurs as forecasters and a market for their services

In this paper we represent the entrepreneurs as individuals who use their private prior knowledge to perform acts of inference required by decision making under conditions of uncertainty. The knowledge endowments of entrepreneurs, and the inferential activity that they perform, are modelled using the customary Bayesian approach of statistical decision theory. We apply this representation of prior knowledge to a problem of decision making under conditions of state uncertainty, namely, the choice of technology when the relative price of production factors is uncertain. The obtained results show how the expected production costs of a firm depend on the inferential skills of its decision maker. On the basis of such results, we model a market for entrepreneurial services, with the aim of assessing the market value of entrepreneurship. This is done assuming Bertrand competition and Cournot competition. In both cases, the set of the entrepreneurial inferential skills determines the size distribution of the firms in an industry and their profitability. The profitability of firms, in turn, determine the value of entrepreneurial services in an industry. Finally, we investigate the effects on social welfare of the diversity of entrepreneurial knowledge endowments. We show that, in most cases, the more unequal the forecasting skills of the entrepreneurs, the larger the social welfare yielded by an industry.