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Size-dependent policies and risky firm creation

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  • Ando, Sakai

Abstract

This paper studies the welfare implications of size-dependent firm regulation policies (SDPs) in the presence of entrepreneurial risks. Although SDPs have been considered sources of misallocation, it is shown that, once entrepreneurial risks are taken into account, SDPs can improve efficiency. Quantitatively, based on French data, removing the SDP can lead to output and welfare loss by up to 1.3 and 1.1 percent respectively. Importantly, the sign and the policy implications are the opposite of the previous literature that abstracts from risks. The analysis uncovers a novel trade-off between the inefficiencies in the intensive and extensive margins.

Suggested Citation

  • Ando, Sakai, 2021. "Size-dependent policies and risky firm creation," Journal of Public Economics, Elsevier, vol. 197(C).
    • Handle: RePEc:eee:pubeco:v:197:y:2021:i:c:s0047272721000402
    DOI: 10.1016/j.jpubeco.2021.104404
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    Cited by:

    1. Philippe Askenazy & Thomas Breda & Vladimir Pecheu, 2022. "Under-Reporting of Firm Size Around Size-Dependent Regulation Thresholds: Evidence from France," PSE Working Papers hal-03654324, HAL.

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    More about this item

    Keywords

    Misallocation; Firm creation; Size-dependent policy; Incomplete markets;
    All these keywords.

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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