ABSTRACT
The previous chapter explained how uncertainty causes investment out-
comes to differ from expectations. This applies primarily to individual ventures, but also to entrepreneurial investment as a whole. Such deviations
from expectations do not need to affect investment expenditures, if long-
term average expectations are upheld. Average rates of return meet expec-
tations, if profits exceed losses enough to satisfy investors. Expected average
rates of return can be as low as the risk-free interest rate, if capital markets
are perfectly competitive. Imperfect capital markets will reach equilibrium
at higher expected rates, which curbs investments. The expected rate of
return is influenced by the institutional set-up of (national) capital markets and government policies. Well-developed financial markets will fund more
investments than weakly developed financial markets.
