IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Entrepreneurial drain under moral hazard: A high-yield sector curse?

  • Perroni, Carlo
  • Proto, Eugenio

We describe a two-sector, general-equilibrium model of productive sorting under output risk and incomplete information. Risk-neutral (entrepreneurial) individuals can either produce alone, or - acting as employers/insurers - team up with risk-averse (non-entrepreneurial) individuals. Although the latter option has the potential to generate more surplus, when effort is unobservable and risk is high, the moral hazard problem in mixed matches may be too severe for mixing to be attractive to both risk-aversion types, leading to a segregated equilibrium in which risk-averse individuals select low-risk, low-yield activities. An increase in the profitability of the riskier sector can then trigger a switch from a mixed to a segregated equilibrium and cause aggregate output to fall. Evidence from a panel of non-OECD countries - showing that the presence of uninsured, small-scale mining firms has a negative impact on the relationship between natural resource exports and agrarian productivity - suggests that this 'high-yield sector curse' might be present in natural resource-rich, low-income countries.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/B6VBV-4W9XBHG-1/2/f7cb1ccc5a82df34542a7b4d14625467
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 93 (2010)
Issue (Month): 1 (September)
Pages: 63-70

as
in new window

Handle: RePEc:eee:deveco:v:93:y:2010:i:1:p:63-70
Contact details of provider: Web page: http://www.elsevier.com/locate/devec

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Collier, Paul & Hoeffler, Anke, 2000. "Greed and grievance in civil war," Policy Research Working Paper Series 2355, The World Bank.
  2. Patrick Legros & Andrew F. Newman, 2003. "Beauty is a Beast, Frog is a Prince: Assortative Matching with Nontransferabilities," Economics Working Papers 0030, Institute for Advanced Study, School of Social Science.
  3. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-98, April.
  4. Timothy Besley & Maitreesh Ghatak, 2003. "Competition and incentives with motivated agents," LSE Research Online Documents on Economics 2202, London School of Economics and Political Science, LSE Library.
  5. Mehlum, Halvor & Moene, Karl-Ove & Torvik, Ragnar, 2003. "Institutions and the resource curse," Memorandum 29/2002, Oslo University, Department of Economics.
  6. Christopher Udry & Santosh Anagol, 2006. "The Return to Capital in Ghana," Working Papers 932, Economic Growth Center, Yale University.
  7. Oded Galor & Joseph Zeira, 2013. "Income Distribution and Macroeconomics," Working Papers 2013-12, Brown University, Department of Economics.
  8. Gylfason, Thorvaldur & Herbertsson, Tryggvi Thor & Zoega, Gylfi, 1999. "A Mixed Blessing," Macroeconomic Dynamics, Cambridge University Press, vol. 3(02), pages 204-225, June.
  9. Anna L. Paulson & Robert M. Townsend & Alexander Karaivanov, 2006. "Distinguishing Limited Liability from Moral Hazard in a Model of Entrepreneurship," Journal of Political Economy, University of Chicago Press, vol. 114(1), pages 100-144, February.
  10. Paul Collier & Anke Hoeffler, 2000. "Greed and Grievance in Civil War," CSAE Working Paper Series 2000-18, Centre for the Study of African Economies, University of Oxford.
  11. Jeffrey D. Sachs & Andrew M. Warner, 1995. "Natural Resource Abundance and Economic Growth," NBER Working Papers 5398, National Bureau of Economic Research, Inc.
  12. Olsson, Ola, 2003. "Conflict Diamonds," Working Papers in Economics 86, University of Gothenburg, Department of Economics, revised 30 Nov 2003.
  13. Proto, Eugenio, 2007. "Land and the transition from a dual to a modern economy," Journal of Development Economics, Elsevier, vol. 83(1), pages 88-108, May.
  14. Erik Hurst & Annamaria Lusardi, 2004. "Liquidity Constraints, Household Wealth, and Entrepreneurship," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 319-347, April.
  15. Diego Restuccia & Dennis Tao Yang & Xiaodong Zhu, 2003. "Agriculture and Aggregate Productivity: A Quantitative Cross-Country Analysis," Working Papers diegor-03-01, University of Toronto, Department of Economics.
  16. David J. McKenzie & Christopher Woodruff, 2006. "Do Entry Costs Provide an Empirical Basis for Poverty Traps? Evidence from Mexican Microenterprises," Economic Development and Cultural Change, University of Chicago Press, vol. 55, pages 3-42.
  17. Miklos Koren & Silvana Tenreyro, 2005. "Volatility and Development," CEP Discussion Papers dp0706, Centre for Economic Performance, LSE.
  18. Kevin Moore, 2004. "Do liquidity constraints matter for new entrepreneurs?," Finance and Economics Discussion Series 2004-42, Board of Governors of the Federal Reserve System (U.S.).
  19. Baumol, William J, 1990. "Entrepreneurship: Productive, Unproductive, and Destructive," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 893-921, October.
  20. Banerjee, Abhijit & Duflo, Esther, 2006. "The Economic Lives of the Poor," CEPR Discussion Papers 5968, C.E.P.R. Discussion Papers.
  21. Harrison, Ann, 1996. "Openness and growth: A time-series, cross-country analysis for developing countries," Journal of Development Economics, Elsevier, vol. 48(2), pages 419-447, March.
  22. Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, vol. 92(368), pages 825-48, December.
  23. van Wijnbergen, Sweder J G, 1984. "The 'Dutch Disease': A Disease after All?," Economic Journal, Royal Economic Society, vol. 94(373), pages 41-55, March.
  24. Sachs, Jeffrey D & Warner, Andrew M, 1997. "Sources of Slow Growth in African Economies," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 6(3), pages 335-76, October.
  25. Dilip Mookherjee, 1997. "Wealth Effects, Incentives and Productivity," Boston University - Institute for Economic Development 77, Boston University, Institute for Economic Development.
  26. Sachs, Jeffrey D. & Warner, Andrew M., 2001. "The curse of natural resources," European Economic Review, Elsevier, vol. 45(4-6), pages 827-838, May.
  27. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August.
  28. Torvik, Ragnar, 2002. "Natural resources, rent seeking and welfare," Journal of Development Economics, Elsevier, vol. 67(2), pages 455-470, April.
  29. Baland, Jean-Marie & Francois, Patrick, 2000. "Rent-seeking and resource booms," Journal of Development Economics, Elsevier, vol. 61(2), pages 527-542, April.
  30. Krugman, Paul, 1987. "The narrow moving band, the Dutch disease, and the competitive consequences of Mrs. Thatcher : Notes on trade in the presence of dynamic scale economies," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 41-55, October.
  31. Lane, Philip R & Tornell, Aaron, 1996. " Power, Growth, and the Voracity Effect," Journal of Economic Growth, Springer, vol. 1(2), pages 213-41, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:deveco:v:93:y:2010:i:1:p:63-70. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.