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Entrepreneurship, Financiership, and Selection

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  • Tuomas Takalo
  • Otto Toivanen

Abstract

We develop an equilibrium model of the market for entrepreneurial finance, in which all agents have some personal wealth and a project whose quality is their private information. All agents choose whether to invest either as entrepreneurs or financiers, or to invest in storage technology. We find that a binding economy‐level wealth constraint, which renders credit scarce, can create advantageous selection, where productive agents become entrepreneurs and unproductive agents become their financiers. If funding is easier to obtain, entrepreneurship also attracts unproductive agents. In our model, individual wealth and entrepreneurship are positively (negatively) correlated if financial market participation is complete (incomplete).

Suggested Citation

  • Tuomas Takalo & Otto Toivanen, 2012. "Entrepreneurship, Financiership, and Selection," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(2), pages 601-628, June.
    • Handle: RePEc:bla:scandj:v:114:y:2012:i:2:p:601-628
    DOI: j.1467-9442.2011.01685.x
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    2. Inci, Eren, 2013. "Occupational choice and the quality of entrepreneurs," Journal of Economic Behavior & Organization, Elsevier, vol. 92(C), pages 1-21.
    3. Zonglai Kou & Patrick Rey & Tong Wang, 2013. "Non-Obviousness and Screening," Journal of Industrial Economics, Wiley Blackwell, vol. 61(3), pages 700-732, September.
    4. Gokmen, Gunes & Morin, Annaig, 2021. "Investment shocks and inequality dynamics," Economic Modelling, Elsevier, vol. 94(C), pages 570-579.
    5. Tuomas Takalo, 2019. "Regulation of short-term consumer credits," Journal of Banking Regulation, Palgrave Macmillan, vol. 20(4), pages 348-354, December.
    6. Silvo, Aino, 2017. "House prices, lending standards, and the macroeconomy," Research Discussion Papers 4/2017, Bank of Finland.
    7. Silvo, Aino, 2017. "House prices, lending standards, and the macroeconomy," Bank of Finland Research Discussion Papers 4/2017, Bank of Finland.

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