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Entrepreneurship, Windfall Gains and Financial Constraints: The Case of Germany

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  • Dorothea Schäfer
  • Oleksandr Talavera

Abstract

In this paper we investigate the link between entrepreneurship and financial constraints. We develop a dynamic partial equilibrium model of an individual utility maximization that predicts that the person is more likely to start her business when financial constraints are eased. We test this hypothesis using German Socio-Economic Panel data covering the periods 2000 - 2002 and measure release from financial constraints by windfall gains. The estimates confirm that the individual has higher propensity to start her business when she gets windfall gains. Furthermore, there are stronger effects for persons that have sufficient, but not very high levels of income and abilities.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.43117.de/dp480.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 480.

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Length: 25 p.
Date of creation: 2005
Date of revision:
Handle: RePEc:diw:diwwpp:dp480

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Keywords: Entrepreneurship; Windfall gains; Financial constraints;

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References

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  1. Black, Jane & de Meza, David & Jeffreys, David, 1996. "House Price, the Supply of Collateral and the Enterprise Economy," Economic Journal, Royal Economic Society, vol. 106(434), pages 60-75, January.
  2. David B. Audretsch, 1995. "Innovation and Industry Evolution," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011468, December.
  3. Xu, Bin, 1998. "A reestimation of the Evans-Jovanovic entrepreneurial choice model," Economics Letters, Elsevier, vol. 58(1), pages 91-95, January.
  4. Besanko, David & Thakor, Anjan V, 1987. "Collateral and Rationing: Sorting Equilibria in Monopolistic and Competitive Credit Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 671-89, October.
  5. Colombo, Massimo G. & Delmastro, Marco & Grilli, Luca, 2004. "Entrepreneurs' human capital and the start-up size of new technology-based firms," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1183-1211, November.
  6. Blanchflower, D.G. & Oswald, A., 1991. "What Makes an Entrepreneur?," Economics Series Working Papers 99125, University of Oxford, Department of Economics.
  7. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November.
  8. Griliches, Zvi, 1977. "Estimating the Returns to Schooling: Some Econometric Problems," Econometrica, Econometric Society, vol. 45(1), pages 1-22, January.
  9. Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 75(4), pages 850-55, September.
  10. Kameliia Petrova, 2005. "Part-Time Entrepreneurship and Wealth Effects: New Evidence from the Panel Study of Entrepreneurial Dynamics," Microeconomics 0510006, EconWPA, revised 03 Nov 2005.
  11. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1993. "Entrepreneurial Decisions and Liquidity Constraints," NBER Working Papers 4526, National Bureau of Economic Research, Inc.
  12. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August.
  13. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  14. Kameliia Petrova, 2012. "Part-time entrepreneurship and financial constraints: evidence from the Panel Study of Entrepreneurial Dynamics," Small Business Economics, Springer, vol. 39(2), pages 473-493, September.
  15. Cressy, Robert, 2000. "Credit rationing or entrepreneurial risk aversion? An alternative explanation for the Evans and Jovanovic finding," Economics Letters, Elsevier, vol. 66(2), pages 235-240, February.
  16. Lindh, Thomas & Ohlsson, Henry, 1996. "Self-Employment and Windfall Gains: Evidence from the Swedish Lottery," Economic Journal, Royal Economic Society, vol. 106(439), pages 1515-26, November.
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Cited by:
  1. Yuliya Demyanyk, 2006. "U.S. banking deregulation and self-employment: a differential impact on those in need," Supervisory Policy Analysis Working Papers 2006-01, Federal Reserve Bank of St. Louis.
  2. Fossen, Frank M. & Steiner, Viktor, 2006. "Income Taxes and Entrepreneurial Choice: Empirical Evidence from Germany," IZA Discussion Papers 2164, Institute for the Study of Labor (IZA).

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