Non-queueing Equilibriums, Innovation Rates, Structure of Economies, and Venture Capital

This study develops a general equilibrium model within which self revelation of ability - that is not accompanied by any signaling - is compatible with arrival at rational expectations equilibriums (REE). In the model, economic agents either are 'confident', 'overconfident', or 'under-confident' about their ability. Neither of overconfidence nor under-confidence is assumed; on the contrary, the two behavioral biases arise in context of establishment of mathematical boundaries on behaviors of economic agents. In the REE within which all agents are overconfident, innovations are not as robust as they are assumed to be, yet ubiquity of sub-optimality is not discernible. In the REE within which all agents are under-confident, innovations are optimal, yet there exist innovations that, ideally are within reach, but yet are not embarked upon, as such not achieved. We arrive then at existence of a structural difference between effects of either of overconfidence or under-confidence. In the REE within which confident, overconfident, and under-confident agents all mass at the same time on the same path, agents are accepted on basis of their self revelations, yet there exists a procedural mechanism, which facilitates a fully revealing REE within a single period. The structure produced by the formal theoretical model is shown to provide a robust explanation for each of structure of industries that subsist within countries, and activities of venture capitalists. In this respect, while the conventional wisdom asserts necessity of transition to a services and knowledge based economy for maximization of economic development, study findings provide unequivocal evidence that manufacturing initiatives feasibly can support economic development that persists in perpetuity