Relative Wealth Concerns and Entrepreneurship
We develop a model of occupational choice and entrepreneurship in the presence of relative wealth concerns. A concern for relative standing arises even though individuals care only about consumption of standard commodities. We assume that entrepreneurial returns are not diversifiable, which results in less entrepreneurship than would be the case with complete markets. Relative wealth concerns are shown to lead to an increase in entrepreneurship and risk-taking, mitigating this difficulty substantially. When we change the profile of the economy to include more risk-averse people, we find that there is a greater increase in entrepreneurship. We examine the effects of uncertainty about economic policies such as market-based reforms on entrepreneurship.
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Volume (Year): 78 (2011)
Issue (Month): 310 (04)
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