Liquidity, risk and occupational choices
AbstractWe explore whether financial constraints matter and which financial constraints matter the most in the choice of becoming an entrepreneur. We exploit a randomly assigned welfare program in rural Mexico to show that cash transfers significantly increase entry into entrepreneurship, thereby providing evidence of financial constraints. We then develop a simple model to highlight how liquidity and insurance constraints respond differently to the time profile of expected cash transfers. Exploiting the cross-households variation in the timing of these transfers, we find that current occupational choices are significantly more responsive to the amount of transfers expected for the future than to the amount of transfers currently received. We interpret these findings as evidence that the program has been effective in promoting micro-entrepreneurship by enhancing the willingness to bear risk.
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Date of creation: Oct 2010
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financial constraints ; entrepreneurship ; insurance; 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-2011-02-19 (All new papers)
- NEP-CIS-2011-02-19 (Confederation of Independent States)
- NEP-DEV-2011-02-19 (Development)
- NEP-ENT-2011-02-19 (Entrepreneurship)
- NEP-IAS-2011-02-19 (Insurance Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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