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Monopolistic Competition and Entrepreneurial RiskRTaking -Too many Cooks Spoil the Broth (but Everyone is better off) -

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  • Clemens, Christiane

Abstract

This paper investigates the effects of monopolistic competition on entrepreneurial riskRtaking in a general equilibrium model. In this context, occupational choice of risk averse agents is biased towards rm ownership. In this case, the inef ciencies due to the presence of nonRdiversi able risk are partly compensated by inef ciencies arising from imperfect competition. Comparative static results show that too many rms remain in the market for an increase in the degree of risk aversion, thereby mutually deteriorating pro t opportunities, which provides an explanation for the empirically observed comparably low risk premium on entrepreneurial risk.

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Bibliographic Info

Paper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Hannover Economic Papers (HEP) with number dp-303.

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Length: 30 pages
Date of creation: Oct 2004
Date of revision:
Handle: RePEc:han:dpaper:dp-303

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Keywords: economics of uncertainty; occupational choice; monopolistic competition;

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  1. Maitreesh Ghatak & Massimo Morelli & Tomas Sjostrom, 2002. "Credit Rationing, Wealth Inequality, and Allocation of Talent," Economics Working Papers 0026, Institute for Advanced Study, School of Social Science.
  2. Blanchflower, David G & Oswald, Andrew J, 1998. "What Makes an Entrepreneur?," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 26-60, January.
  3. John Y. Campbell, 1995. "Understanding Risk and Return," Harvard Institute of Economic Research Working Papers 1711, Harvard - Institute of Economic Research.
  4. Cramer, J. S. & Hartog, J. & Jonker, N. & Van Praag, C. M., 2002. "Low risk aversion encourages the choice for entrepreneurship: an empirical test of a truism," Journal of Economic Behavior & Organization, Elsevier, vol. 48(1), pages 29-36, May.
  5. BOADWAY, Robin & MARCHAND, Maurice & PESTIEAU, Pierre, . "Optimal linear income taxation in models with occupational choice," CORE Discussion Papers RP -958, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. John Heaton & Deborah Lucas, 2000. "Portfolio Choice and Asset Prices: The Importance of Entrepreneurial Risk," Journal of Finance, American Finance Association, vol. 55(3), pages 1163-1198, 06.
  7. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  8. Carroll, Christopher D. & Samwick, Andrew A., 1997. "The nature of precautionary wealth," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 41-71, September.
  9. Ghatak, Maitreesh & Morelli, Massimo & Sjostrom, Tomas, 2001. "Occupational Choice and Dynamic Incentives," Review of Economic Studies, Wiley Blackwell, vol. 68(4), pages 781-810, October.
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