This dissertation comprises three self-contained papers on the economics of entrepreneurship. Entrepreneurs engage in risky real investment in the form of starting their firms. They bring new products to the market; they employ new production processes; they employ new workers. In other words, they organize the production. If this is the case, entrepreneurs are either directly or indirectly the engines for economic growth, and this makes public policy regarding entrepreneurship quite important.

The first paper focuses on organization of new firms, and the impact of entrepreneurs on market outcomes; occupational choice and wealth distribution, and their effects on the loan contract structure. The model developed is then used to analyze the role of the government in improving the average quality of entrepreneurs. I show that, in some economies, a small tax on entrepreneurs used to subsidize workers can increase the average quality of entrepreneurs and welfare by changing the thresholds of the wealth classes.

The second paper analyzes the formation of firm networks and how relationships between potential entrepreneurs, established firms, and local financiers affect the prices of loans. An analysis of incentives to form such networks is also given here. I show how such networks improve the match of capital to ideas within them, even though the overall distribution of capital to ideas remains unchanged. I also show that there are market incentives for established firms to decrease the information gap between network entrepreneurs and local financiers.

The third paper is on the role of the government in fostering innovation in the presence of interplay between strategic interaction and technological spillovers. I find that the socially desirable level of R&D investment is not necessarily reached by subsidizing R&D. When the sector spillover is sufficiently low, the government might want to tax R&D investments. This result does not necessarily arise because firms are overinvesting in R&D. There are also cases in which an R&D tax is desirable even though firms are underinvesting in R&D.