Journal of Business & Economic Policy

Public Funds and Entrepreneurship: A Cognitive Economics Approach
KOUAKOU Thiédjé Gaudens-Omer

Abstract
This paper studies the effectiveness of public policies for the financing of entrepreneurship in developing countries. The approach of the cognitive economics makes it possible to resort to psychological matters in this analysis. Through an informed principal model in the form of Perfect Bayesian game, we show that when potential creators are less informed about their project and lack the capacity for self-determination, the public funds could induce an eviction of their intrinsic motivation. The consequences are various: strong failure rate of business projects, diversion of public funds to other projects, etc. The public authorities can reinforce the effectiveness of public funds by taking into account cognitive behavior of the potential creators and by improving their access to information.

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