Entrepreneur’s Choice: Productive or Unproductive Activities? (Modelling the Interactive Relationship Between the Governments,Entrepreneurs and Financiers)

Abstract

This article was developed on the dynamic game framework under complete information for strategising three main actors: government, entrepreneurs and banks. The main objective of this study is to find out how entrepreneurs choose between productive and unproductive activities in a particular set of institutional rules and the optimal strategic profiles are mapped according to the Nash equilibrium. A numerical analysis with Iranian data is then presented. The results provide evidence that while optimal government support policies and financial facilitation can increase the level of an entrepreneurial activity, it is primarily the institutional environment that dictates the nature of entrepreneurial engagement. In other words, supportive policies and increased profit potential may encourage the establishment of new ventures, but meaningful changes in the institutional structures will steer an entrepreneur towards productive rather than unproductive activities.