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The Spirit of Capitalism, Entrepreneurship, and Talent Allocation

Author

Listed:
  • Yang Ming

    (Central University of Finance and Economics)

  • Heng-fu Zou

    (Central University of Finance and Economics)

Abstract

This paper develops a theoretical model to explore the impact of the spirit of capitalism (SOC) on entrepreneurship and the allocative efficiency of talent. In the presence of financial frictions, both individual abilities and wealth play crucial roles in shaping occupational choices. Consequently, individuals with a stronger SOC are more inclined towards entrepreneurship. However, this heightened entrepreneurial activity leads to allocative inefficiencies in talent allocation, as some wealthy but less skilled individuals pursue entrepreneurial ventures. Mitigating financial frictions serves to enhance overall productivity by rectifying this inefficiency, though its influence on entrepreneurship remains uncertain. Conversely, increasing the fraction of individuals with higher SOC yields non-monotonic effects on both aggregate productivity and entrepreneurship. The calibrated model introduces a novel perspective on the decline in entrepreneurship witnessed in the U.S. and other advanced economies over recent decades.

Suggested Citation

  • Yang Ming & Heng-fu Zou, 2024. "The Spirit of Capitalism, Entrepreneurship, and Talent Allocation," Annals of Economics and Finance, Society for AEF, vol. 25(1), pages 1-29, May.
    • Handle: RePEc:cuf:journl:y:2024:v:25:i:1:mingzou
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    More about this item

    Keywords

    Spirit of capitalism; Entrepreneurship; Talent allocation; Occupational choice;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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