Liquidity, Risk, and Occupational Choices
AbstractWe explore which financial constraints matter the most in the choice of becoming an entrepreneur. We consider a randomly assigned welfare program in rural Mexico and show that cash transfers signi cantly increase entry into entrepreneurship. We then exploit the cross-household variation in the timing of these transfers and nd that current occupational choices are signi cantly more responsive to the transfers expected for the future than to those currently received. Guided by a simple occu- pational choice model, we argue that the program has promoted entrepreneurship by enhancing the willingness to bear risk as opposed to simply relaxing current liquidity constraints.
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Bibliographic InfoPaper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/5380.
Date of creation: Apr 2013
Date of revision:
Publication status: Published in Review of Economic Studies, 2013, Vol. 80, no. 2. pp. 491-511.Length: 20 pages
insurance; entrepreneurship; Financial constraints; liquidity;
Other versions of this item:
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-11-16 (All new papers)
- NEP-ENT-2013-11-16 (Entrepreneurship)
- NEP-IAS-2013-11-16 (Insurance Economics)
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