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Entrepreneurial Abilities and Liabilities in a Model of Self-Selection

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  • Christophe Chamley

Abstract

The role of the liability form as a signalling device is analyzed in a model of occupational choice (entrepreneurs, employees), with asymmetric information in loan markets about the abilities of entrepreneurs. The properties of the equilibrium are described. When factor prices are exogenous, the feasibility of limited liability is a Pareto improvement over a regime where there is only unlimited liability. This result does not hold when factor prices are endogenous.

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  • Christophe Chamley, 1983. "Entrepreneurial Abilities and Liabilities in a Model of Self-Selection," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 70-80, Spring.
    • Handle: RePEc:rje:bellje:v:14:y:1983:i:spring:p:70-80
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    1. 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 719-748, August.
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    6. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
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    Cited by:

    1. Laurence J. Kotlikoff & Jianjun Miao, 2013. "What Does the Corporate Income Tax Tax? A Simple Model Without Capital," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 1-19, May.
    2. Parker, Simon C, 2002. "Do Banks Ration Credit to New Enterprises? And Should Governments Intervene? President's Lecture Delivered at the Annual General Meeting of the Scottish Economic Society 4-5 September 2001," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(2), pages 162-195, May.
    3. Daniela Grieco, 2007. "The entrepreneurial decision: Theories, determinants and constraints," KITeS Working Papers 200, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised May 2007.
    4. Cook, William & Whittle, Richard, 2015. "Do individuals’ risk and time preferences predict entrepreneurial choice?," MPRA Paper 66674, University Library of Munich, Germany.
    5. Gravelle, Jane G & Kotlikoff, Laurence J, 1995. "Corporate Taxation and the Efficiency Gains of the 1986 Tax Reform Act," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 51-81, June.
    6. Eren Inci & Simon C. Parker, 2013. "Financing Entrepreneurship and the Old‐Boy Network," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(2), pages 232-258, June.
    7. Bracht, Felix & Mahieu, Jeroen & Vanhaverbeke, Steven, 2023. "The signaling value of legal form in debt financing," LSE Research Online Documents on Economics 121335, London School of Economics and Political Science, LSE Library.
    8. Felix Bracht & Jeroen Mahieu & Steven Vanhaverbeke, 2023. "The signaling value of legal form in debt financing," CEP Discussion Papers dp1914, Centre for Economic Performance, LSE.
    9. Gravelle, Jane G & Kotlikoff, Laurence J, 1989. "The Incidence and Efficiency Costs of Corporate Taxation When Corporate and Noncorporate Firms Produce the Same Good," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 749-780, August.
    10. Oana Secrieru & Marianne Vigneault, 2004. "Public Venture Capital and Entrepreneurship," Staff Working Papers 04-10, Bank of Canada.
    11. Felix Bracht & Jeroen Mahieu & Steven Vanhaverbeke, 2022. "The signaling value of legal form in debt financing," POID Working Papers 052, Centre for Economic Performance, LSE.
    12. Hoff, Karla, 1997. "Bayesian learning in an infant industry model," Journal of International Economics, Elsevier, vol. 43(3-4), pages 409-436, November.

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