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Liquidity, Risk, and Occupational Choices

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  • Matteo Bobba

Abstract

We explore which financial constraints matter most in the choice of becoming an entrepreneur. We consider a randomly assigned welfare programme in rural Mexico and show that cash transfers significantly increase entry into entrepreneurship. We then exploit cross-household variation in the timing of these transfers and find that current occupational choices are significantly more responsive to the transfers expected for the future than to those currently received. Guided by a simple occupational choice model, we argue that the programme has promoted entrepreneurship by enhancing willingness to bear risk as opposed to simply relaxing current liquidity constraints. Copyright 2013, Oxford University Press.

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  • Matteo Bobba, 2013. "Liquidity, Risk, and Occupational Choices," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(2), pages 491-511.
    • Handle: RePEc:oup:restud:v:80:y:2013:i:2:p:491-511
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    File URL: http://hdl.handle.net/10.1093/restud/rds031
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