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Learning, Life-Cycle And Entrepreneurial Investment

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Author Info
Claudio Campanale () (Universidad de Alicante)

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Abstract

In this paper I present a calibrated model of life-cycle occupation and investment decisions where households choose between paid work and entrepreneurship and conditional on the latter how much of their savings to invest in their business. The returns to entrepreneurial activity are modeled through Bayesian learning. The model is able to reproduce the main stylized facts of entry in and exit out of self-employment over the life-cycle. It also suggests a partial explanation of the recent finding of Moskowitz and Vissing-Jørgensen (2002) that entrepreneurs seem not to require a premium for the extra risk of their private equity investment.

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Publisher Info
Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2006-29.

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Length: 28 pages
Date of creation: Jan 2007
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Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2006-29

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Keywords: Occupational choice portfolio choice entrepreneurship firm dynamics learning private equity premium

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  1. Tobias J. Moskowitz & Annette Vissing-Jorgensen, 2002. "The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?," American Economic Review, American Economic Association, vol. 92(4), pages 745-778, September. [Downloadable!] (restricted)
  2. Valery Polkovnichenko, 2003. "Human Capital and the Private Equity Premium," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 831-845, October. [Downloadable!] (restricted)
  3. Evans, David S, 1987. "Tests of Alternative Theories of Firm Growth," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 657-74, August. [Downloadable!] (restricted)
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  4. Heaton, John & Lucas, Deborah, 2000. "Portfolio Choice in the Presence of Background Risk," Economic Journal, Royal Economic Society, vol. 110(460), pages 1-26, January. [Downloadable!] (restricted)
  5. William M. Gentry & R. Glenn Hubbard, 2000. "Entrepreneurship and Household Saving," NBER Working Papers 7894, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Hugo A. Hopenhayn & Galina Vereshchagina, 2003. "Risk Taking by Entrepreneurs," RCER Working Papers 500, University of Rochester - Center for Economic Research (RCER). [Downloadable!]
  7. 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. [Downloadable!] (restricted)
  8. R. Glenn Hubbard & Jonathan Skinner & Stephen P. Zeldes, 1994. "The Importance of Precautionary Motives in Explaining Individual and Aggregate Saving," NBER Working Papers 4516, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Marco Cagetti & Mariacristina De Nardi, 2003. "Entrepreneurship, frictions, and wealth," Staff Report 322, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  10. Hintermaier, Thomas & Steinberger, Thomas, 2005. "Occupational choice and the private equity premium puzzle," Journal of Economic Dynamics and Control, Elsevier, vol. 29(10), pages 1765-1783, October. [Downloadable!] (restricted)
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  11. Evans, David S & Leighton, Linda S, 1989. "Some Empirical Aspects of Entrepreneurship," American Economic Review, American Economic Association, vol. 79(3), pages 519-35, June. [Downloadable!] (restricted)
  12. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1988. "Patterns of Firm Entry and Exit in U.S. Manufacturing Industries," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 495-515, Winter. [Downloadable!] (restricted)
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  13. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May. [Downloadable!] (restricted)
  14. John Y. Campbell & Martin Lettau & Burton G. Malkiel & Yexiao Xu, 2000. "Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk," NBER Working Papers 7590, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. John Y. Campbell & Joao F. Cocco & Francisco J. Gomes & Pascal J. Maenhout, 1999. "Investing Retirement Wealth: A Life-Cycle Model," NBER Working Papers 7029, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. Tobias J. Moskowitz & Annette Vissing-Jorgensen, 2002. "The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?," NBER Working Papers 8876, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June. [Downloadable!] (restricted)
  18. Vincenzo Quadrini, 2000. "Entrepreneurship, Saving and Social Mobility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 1-40, January. [Downloadable!] (restricted)
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