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A study on the role of guanxi in entrepreneurship and employment

  • Chen, Yao-Tung
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    This paper examines the role of guanxi in influencing the decision of an individual to be an entrepreneur facing a risky technology or to become a worker facing an unemployment rate. Individuals are assumed to vary in terms of the strength of their established guanxi that could be utilized either to lower the set-up cost as entrepreneurs or to secure jobs as workers. Compared with the case where guanxi can only be used to reduce the individual's set-up cost to become an entrepreneur, it is shown that if guanxi can also help a worker find a job, then whether the employment rate might be improved or worsened will depend on the absolute risk aversion that is increasing or decreasing in income.

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    Article provided by Elsevier in its journal Economic Modelling.

    Volume (Year): 28 (2011)
    Issue (Month): 4 (July)
    Pages: 2049-2053

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    Handle: RePEc:eee:ecmode:v:28:y:2011:i:4:p:2049-2053
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    1. Matt Jackson, 2003. "The Effects of Social Networks on Employment and Inequality," Theory workshop papers 658612000000000032, UCLA Department of Economics.
    2. Marco Cagetti & Mariacristina De Nardi, 2005. "Entrepreneurship, frictions, and wealth," Working Paper Series WP-05-09, Federal Reserve Bank of Chicago.
    3. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-48, August.
    4. André van Stel & Roy Thurik & David Audretsch & Martin Carree, 2005. "Does Self-Employment Reduce Unemployment?," Scales Research Reports N200504, EIM Business and Policy Research.
    5. 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.
    6. Steier, Lloyd, 2003. "Variants of agency contracts in family-financed ventures as a continuum of familial altruistic and market rationalities," Journal of Business Venturing, Elsevier, vol. 18(5), pages 597-618, September.
    7. Fan, Ying, 2002. "Questioning guanxi: definition, classification and implications," International Business Review, Elsevier, vol. 11(5), pages 543-561, October.
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