Friday, May 12, 2006

Entrepreneurial gambling

The Dutch research body NWO has issued a release about an intriguing-sounding study by PhD student Joost Beuving. Beuving studied the behaviour of entrepreneurial second-hand car dealers in West Africa, following an influx of European cars in the late 1990s:

According to Beuving the entrepreneurship of the car dealers was more important than free trade for the rapid growth of the West African second-hand car market. The car traders invested in the trade, even though they were making less profit, the prices were falling and there were increasingly more bankruptcies.
The business world of the second-hand car trade was characterised by a strong and widely held belief in an unexpected business jackpot.
In addition to this the social relationships in this world were found to be brief and unharmonious. As a result of this it was difficult for the dealers to obtain reliable market information. Therefore the business decisions made resembled a gamble in which capital was frequently invested in an 'all or nothing' attempt. This regularly led to large losses.

There's potentially interesting implications for studies of entrepreneurship in more 'developed' economies, not all of which involve as careful a weighing of risk as economic theory assumes. Beuven compares the West African situation to the behaviour of the gold diggers of the Klondike - might there also be parallels in the more recent goldrush of the dotcom bubble, or the currently faddishly hot areas of tech?



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