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Credit and self-employment

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  • Akyol, Ahmet
  • Athreya, Kartik

Abstract

The US personal bankruptcy system allows debtors to discharge uncollateralized debts if they give up assets in excess of a threshold known as an "exemption". However, since exemptions erode repayment incentives, they may increase borrowing costs. Our paper evaluates the tradeoff between credit costs and the insurance against failure created by bankruptcy exemptions. We find that exemptions change self-employment rates and the timing, size, and financing of projects. We also find that the positive relationship between wealth and self-employment rates may not arise from credit constraints: such a relationship is present even when credit is plentiful at low interest rates.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 35 (2011)
Issue (Month): 3 (March)
Pages: 363-385

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Handle: RePEc:eee:dyncon:v:35:y:2011:i:3:p:363-385

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Web page: http://www.elsevier.com/locate/jedc

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Keywords: Self-employment Bankruptcy;

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References

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Cited by:
  1. Ximena Peña Parga & Camilo Mondragón-Vélez, 2008. "Business Ownership and Self-Employment in Developing Economies: The Colombian Case," DOCUMENTOS CEDE 004672, UNIVERSIDAD DE LOS ANDES-CEDE.
  2. Galina Vereshchagina & Hugo A. Hopenhayn, 2009. "Risk Taking by Entrepreneurs," American Economic Review, American Economic Association, vol. 99(5), pages 1808-30, December.
  3. Vincenzo Quadrini, 2009. "Entrepreneurship in macroeconomics," Annals of Finance, Springer, vol. 5(3), pages 295-311, June.
  4. Mankart, Jochen & Rodano, Giacomo, 2012. "Bankruptcy Law, Debt Portfolios, and Entrepreneurship," Economics Working Paper Series 1216, University of St. Gallen, School of Economics and Political Science.
  5. Ahmet Akyol & Kartik Athreya, 2009. "Self-employment rates and business size: the roles of occupational choice and credit market frictions," Annals of Finance, Springer, vol. 5(3), pages 495-519, June.
  6. Jacob M. Short & Andy Glover, 2011. "Bankruptcy, Incorporation and the Nature of Entrepreneurial Risk," 2011 Meeting Papers 836, Society for Economic Dynamics.
  7. Andrew Glover, 2010. "Bankruptcy, Incorporation, and the Nature of Entrepreneurial Risk," 2010 Meeting Papers 1010, Society for Economic Dynamics.
  8. Césaire A. Meh & Yaz Terajima, 2008. "Unsecured Debt, Consumer Bankruptcy, and Small Business," Working Papers 08-5, Bank of Canada.
  9. Mette Ejrnæs & Stefan Hochguertel, 2014. "Insurance, Entrepreneurial Start-Up, and Performance," Tinbergen Institute Discussion Papers 14-040/V, Tinbergen Institute.

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