This dissertation analyzes problems related to barriers to innovation. In the first chapter, “Delegation and Learning”, I study an agency problem which is common in many contexts involving financing of innovation. Consider the example of an entrepreneur, who has an idea but not the money to implement it, and an investor, who has the money but not the idea. In such a case, how should a financial contract between the investor and the entrepreneur look like? How much money should the investor provide the entrepreneur? How should the surplus be divided between them in case the idea turns out to be profitable? There are certain common elements in situations such as these. First, there is an element of learning. This is because initially it is unknown if the idea is profitable or not and hence the idea has to be tried out in the market and both the investor and entrepreneur learn about the profitability of the idea from observing market outcomes. Second, there is an element of delegation in the above situation. This is because decision rights regarding where and when should the idea be tried out is typically in the hands of the entrepreneur and he knows his idea better than the investor. Finally, the preferences of the investor and the entrepreneur might not be aligned. For instance, the investor may receive private benefits, monetary or reputational, from launching products even when these are not profitable. In such a case, how should a contract that incentivizes the entrepreneur to act in the investor’s interest look like? To study these issues, I develop a model in which a principal contracts with an agent whose ability is uncertain. Ability is learnt from the agent’s performance in projects that the principal finances over time. Success however also depends on the quality of the project at hand, and quality is privately observed by the agent who is biased towards implementation. I characterize the optimal sequence of rewards in a relationship that tolerates an endogenously determined finite number of failures and incentivizes the agent to implement only good projects by specifying rewards for success as a function of past failures. The fact that success becomes less likely over time suggests that rewards for success should increase with past failures. However, this also means that the agent can earn a rent from belief manipulation by deviating and implementing a bad project which is sure to fail. I show that this belief-manipulation rent decreases with past failures and implies that optimal rewards are front-loaded. The optimal contract resembles the arrangements used in venture capital, where entrepreneurs must give up equity share in exchange for further funding following failure. In the second chapter, “Informal Risk Sharing and Index Insurance: Theory with Experimental Evidence”, written with Francis Annan, we study when does informal risk sharing act as barrier or support to the take-up of an innovative index-based weather insurance? We evaluate this substitutability or complementarity interaction by considering the case of an individual who endogenously chooses to join a group and make decisions about index insurance. The presence of an individual in a risk sharing arrangement reduces his risk aversion, termed “Effective Risk Aversion” — a sufficient statistic for index decision making. Our analysis establishes that such reduction in risk aversion can lead to either reduced or increased take up of index insurance. These results provide alternative explanations for two empirical puzzles: unexpectedly low take-up for index insurance and demand being particularly low for the most risk averse. Experimental evidence based on data from a panel of field trials in India, lends support for several testable hypotheses that emerge from our baseline analysis. In the third chapter, “Investment Timing, Moral Hazard and Overconfidence”, I study how overconfidence and financial frictions impact entrepreneurs by shaping their incentives to learn. I consider a real option model in which an entrepreneur learns about the quality of project he has, prior to implementation. Success depends on the quality of the project as well as the unknown ability of the entrepreneur. The possibility of the entrepreneur diverting investor funds to his private uses, creates a moral hazard problem which leads to delayed investment and over-experimentation. An entrepreneur who is overconfident regarding his ability, under-experiments and over invests compared to an entrepreneur who has accurate beliefs regarding his ability. Such overconfidence on behalf of the entrepreneur creates inefficiencies when projects are self financed, but reduces inefficiencies due to moral hazard in case of funding by investors.

While entrepreneurship is frequently touted as an engine for macroeconomic growth, and there is increasing policy interest in promoting entrepreneurship in lower-income countries, aspiring entrepreneurs in developing regions face unique constraints on their ability to grow successful businesses. This dissertation contains three empirical essays studying the factors that enable and constrain entrepreneurial growth in low-income contexts, drawing on data from a randomized field experiment studying an entrepreneurial training program in Zimbabwe. The first essay examines how entrepreneurial training impacts key hinge decisions on whether to continue pursuing an initial business idea, or to pivot to a new opportunity. The second essay studies how entrepreneurial training impacts subjective well-being, and the reasons why it might not track neatly with economic outcomes. The third essay studies innovation in the context of small informal enterprises, using text-based machine learning methods.

Cities, as epicenters of resource consumption and waste production, play a crucial role in spearheading the transition towards a circular economy, where waste is minimized and the lifecycle of resources is maximized. Fashion industry activities, in particular, are predominantly concentrated in the urban context, from design activities to consumption and disposal. Given their role as centers of entrepreneurship and innovation, what opportunities and challenges do cities present in facilitating an industrial paradigm shift towards circularity in the fashion industry? How do entrepreneurial actors and supportive intermediaries pave the way toward a circular system? This dissertation examines the processes of entrepreneurship and the dynamics of learning that propel the fashion industry toward a circular economy, or circular fashion. It brings together literature on circular economy businesses and entrepreneurship with economic geography insights into the localized processes of innovation and entrepreneurship within cultural and creative industries. The three papers presented contribute to the expanding field of research and practice in the circular economy and circular fashion by underscoring the significance of proximity relations, entrepreneurial initiatives, and the dynamics of knowledge intermediation. Through a systematic literature review and a case study of New York City’s fashion industry, the three papers cultivate a nuanced understanding on the micro-dynamics of circular fashion entrepreneurship and relational processes that accompany the transition towards circular fashion. They highlight the importance of the interplay between geographical and non-geographical proximities, place-based entrepreneurial initiatives, and knowledge coordination efforts, offering a comprehensive view of the circular fashion landscape and policy implications.

Thesis (MTech (Business Administration))--Cape Peninsula University of Technology, 2018. / Entrepreneurship is distinguished by its developmental and transformative qualities, particularly in the context of emerging economies. Entrepreneurship plays an important role in developing the economy of a country as the entrepreneur sparks economic activities through his/her entrepreneurial decisions. These entrepreneurial decisions lead to the creation of new business activities which in turn are a driving force in economic growth, creating jobs and enhancing fiscal credibility. However, the role of entrepreneurship in economic development varies from economy to economy and depends on the availability and accessibility of material resources, the industrial climate and the effectiveness of the political system underpinning the economy. In South Africa, there are major challenges that contribute to the unstable state of the economy. Retrenchments, the high failure rate of new businesses and the lack of growth in existing ones give credence to the summation that the South African economy is not expansively equipped to meet the challenges of a sustainable growth environment. A thriving entrepreneurial environment has significant benefits for job creation and the equitable distribution of economic wealth. In recent years, South African economists have been scrambling for solutions to the static economy that has seen a decline in new businesses of 34% from 2013 to 2014, resulting in continuing economic instability. Considering the trend highlighted above, the researcher was intrigued to examine the state of entrepreneurship and its socio-economic impact in the Cape Metropole Area. The researcher made use of a mixed-method research approach with an explanatory purpose, employing triangulation to achieve complementary results. The research invoked both interpretivist and positivist paradigms, though leaning towards the collection of qualitative data using semi-structured interviews and open-ended and closed questionnaires. The confidentiality of the information from respondents was ensured. The findings revealed that most entrepreneurs experience difficulty in accessing crucial entrepreneurial framework conditions, which hinders their activities. The findings also revealed that South Africa is at present not realising its job-creation potential and is therefore making little progress with unemployment and poverty reduction. In conclusion, entrepreneurs are essential to the economy and the society in any country regardless of its economic development. Their entrepreneurial decisions give hope to the growing number of unemployed people in South Africa. However, entrepreneurial activities are more fruitful in an environment that is condusive to buineess growth. Unless a favourable entrepreneurial environment is created, the entrepreneurial and labour classes will be incapable of realising their potential as a major engine for job creationand catalyst for economic growth. In South Africa, only a vigorous performance of the SMME sector and entrepreneurship, creating millions of sustainable jobs can stimulate economic growth and make it possible to reduce unemployment and for millions to escape the poverty trap. It is therefore recommended that the government and independent organisations work together to initiate programmes enabling existing and potential entrepreneurs to excel and initiate successful entrepreneurial activities. In general, there is a need for a macroeconomic environment that is friendly to labour-intensive investment, in order to generate spill-over growth effects, because entrepreneurs are more likely to invest productively, create jobs and contribute to poverty reduction.