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Occupational choice and liquidity constraints


Using U.S. data, Evans and Jovanovic find a strong effect of the level of assets on the probability of being self-employed. They interpret this result as evidence of liquidity constraints. In this paper, we follow up this line of research: first, by replicating Evans and Jovanovic's methodology on French data to show that the empirical evidence is similar. Second, we embed their static model into a dynamic framework with uncertainty. The main theoretical prediction that can be drawn is that if the liquidity constraint is strong enough a future increase in the “entrepreneurial ability” of an agent, although raising expected future incomes, may induce her to lower her current consumption and raise her savings.

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Article provided by Elsevier in its journal Ricerche Economiche.

Volume (Year): 50 (1996)
Issue (Month): 2 (June)
Pages: 105-133

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Handle: RePEc:eee:riceco:v:50:y:1996:i:2:p:105-133
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