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Risk-Sharing and Entrepreneurship

Author

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  • Kilström, Matilda

    (Stockholm School of Economics)

  • Roth, Paula

    (Research Institute of Industrial Economics (IFN))

Abstract

In this paper, we study the role of risk-sharing in entrepreneurship-driven innovation. Studying entrepreneurship and innovation entails modeling an occupational choice and an effort choice. Risk-sharing may increase the number of individuals who become entrepreneurs by limiting the downside risk. The effort of entrepreneurs may, however, be hampered by high risk-sharing if this limits the returns faced by successful entrepreneurs relative to unsuccessful entrepreneurs. We construct a simple theoretical model where risk-sharing may be either private or provided through the welfare state by means of taxation. We show that, in addition to the occupational and effort choice dimensions, the level of public risk-sharing also matters for the characteristics of entrepreneurs.

Suggested Citation

  • Kilström, Matilda & Roth, Paula, 2022. "Risk-Sharing and Entrepreneurship," Working Paper Series 1424, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:1424
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    References listed on IDEAS

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    More about this item

    Keywords

    Innovation; Institutions; Growth risk-sharing; Inequality; Incentives;
    All these keywords.

    JEL classification:

    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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