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Liquidity, Risk, and Occupational Choices

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  • Matteo Bobba

Abstract

We explore which financial constraints matter most in the choice of becoming an entrepreneur. We consider a randomly assigned welfare programme in rural Mexico and show that cash transfers significantly increase entry into entrepreneurship. We then exploit cross-household variation in the timing of these transfers and find that current occupational choices are significantly more responsive to the transfers expected for the future than to those currently received. Guided by a simple occupational choice model, we argue that the programme has promoted entrepreneurship by enhancing willingness to bear risk as opposed to simply relaxing current liquidity constraints. Copyright 2013, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Review of Economic Studies.

Volume (Year): 80 (2013)
Issue (Month): 2 ()
Pages: 491-511

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Handle: RePEc:oup:restud:v:80:y:2013:i:2:p:491-511

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  1. de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2007. "Returns to Capital in Microenterprises: Evidence from a Field Experiment," IZA Discussion Papers 2934, Institute for the Study of Labor (IZA).
  2. Holtz-Eakin, Douglas & Joulfaian, David & Rosen, Harvey S, 1994. "Sticking It Out: Entrepreneurial Survival and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 53-75, February.
  3. Ricardo Hausmann & Dani Rodrik, 2002. "Economic Development as Self-Discovery," NBER Working Papers 8952, National Bureau of Economic Research, Inc.
  4. Emmanuel Skoufias & Vincenzo Di Maro, 2008. "Conditional Cash Transfers, Adult Work Incentives, and Poverty," Journal of Development Studies, Taylor & Francis Journals, vol. 44(7), pages 935-960.
  5. Dercon, Stefan & Christiaensen, Luc, 2007. "Consumption risk, technology adoption, and poverty traps : evidence from Ethiopia," Policy Research Working Paper Series 4257, The World Bank.
  6. Nava Ashraf & Dean Karlan & Wesley Yin, 2006. "Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines," The Quarterly Journal of Economics, MIT Press, vol. 121(2), pages 635-672, May.
  7. Morduch, J., 1995. "Income Smoothing and Consumption Smoothing," Papers 512, Harvard - Institute for International Development.
  8. Ray, Debraj, 2007. "Introduction to development theory," Journal of Economic Theory, Elsevier, vol. 137(1), pages 1-10, November.
  9. Paul Schultz, T., 2004. "School subsidies for the poor: evaluating the Mexican Progresa poverty program," Journal of Development Economics, Elsevier, vol. 74(1), pages 199-250, June.
  10. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-48, August.
  11. Banerjee, Abhijit V. & Duflo, Esther, 2005. "Growth Theory through the Lens of Development Economics," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 7, pages 473-552 Elsevier.
  12. Gin, Xavier & Yang, Dean, 2009. "Insurance, credit, and technology adoption: Field experimental evidencefrom Malawi," Journal of Development Economics, Elsevier, vol. 89(1), pages 1-11, May.
  13. Scott Shane, 2009. "Why encouraging more people to become entrepreneurs is bad public policy," Small Business Economics, Springer, vol. 33(2), pages 141-149, August.
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Cited by:
  1. Imbert, Clément, 2013. "Travailler pour être aidé? L’emploi garanti en Inde," Opuscules du CEPREMAP, CEPREMAP, number 33, May.
  2. Bruhn, Miriam & Zia, Bilal, 2011. "Stimulating managerial capital in emerging markets : the impact of business and financial literacy for young entrepreneurs," Policy Research Working Paper Series 5642, The World Bank.
  3. Fitz, Dylan, 2013. "Development Chutes and Ladders: A Joint Impact Evaluation of Asset and Cash Transfers in Brazil," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150254, Agricultural and Applied Economics Association.
  4. Escobal, Javier & Benites, Sara, 2012. "Algunos impactos del programa JUNTOS en el bienestar de los niños: Evidencia basada en el estudio Niños del Milenio
    [Impacts of the Conditional Cash Transfer programme JUNTOS for children in Peru
    ," MPRA Paper 56480, University Library of Munich, Germany.
  5. Alderman, Harold & Yemtsov, Ruslan, 2013. "How can safety nets contribute to economic growth ?," Policy Research Working Paper Series 6437, The World Bank.

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