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The Winner’s Curse of Human Capital

  • Thomas Åstbro


  • Irwin Bernhardt
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    We extend a model developed by Evans and Jovanovic (1989) to explain when start-ups are credit constrained. We show that the magnitude of the credit constraint is conditioned by the relative productivity of human capital in both wage work and self-employment. The effect of predicted household income on start-up capital is used to indicate the existence of financial constraint. Empirical analysis reveals that entrepreneurs with high human capital have both greater financial wealth and greater levels of start-up capital pointing to the endogenous nature of credit constraints. High human capital relaxes financial constraints, apparently due to greater productivity of human capital in wage work than in self-employment. Those who are the least likely to be credit constrained in self-employment are those that are least likely to switch into self-employment,and vice versa. Copyright Springer Science + Business Media, Inc. 2005

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    Article provided by Springer in its journal Small Business Economics.

    Volume (Year): 24 (2005)
    Issue (Month): 1 (February)
    Pages: 63-78

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    Handle: RePEc:kap:sbusec:v:24:y:2005:i:1:p:63-78
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    7. Bates, Timothy, 1990. "Entrepreneur Human Capital Inputs and Small Business Longevity," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 551-59, November.
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