Liquidity, Risk, and Occupational Choices
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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Volume (Year): 80 (2013)
Issue (Month): 2 ()
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References listed on IDEAS
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- Holtz-Eakin, Douglas & Joulfaian, David & Rosen, Harvey S, 1994.
"Sticking It Out: Entrepreneurial Survival and Liquidity Constraints,"
Journal of Political Economy,
University of Chicago Press, vol. 102(1), pages 53-75, February.
- Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1993. "Sticking it Out: Entrepreneurial Survival and Liquidity Constraints," NBER Working Papers 4494, National Bureau of Economic Research, Inc.
- de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2007.
"Returns to Capital in Microenterprises: Evidence from a Field Experiment,"
IZA Discussion Papers
2934, Institute for the Study of Labor (IZA).
- Suresh de Mel & David McKenzie & Christopher Woodruff, 2009. "Returns to Capital in Microenterprises: Evidence from a Field Experiment," The Quarterly Journal of Economics, Oxford University Press, vol. 124(1), pages 423.
- Suresh de Mel & David McKenzie & Christopher Woodruff, 2008. "Returns to Capital in Microenterprises: Evidence from a Field Experiment," The Quarterly Journal of Economics, Oxford University Press, vol. 123(4), pages 1329-1372.
- de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2007. "Returns to capital in microenterprises : evidence from a field experiment," Policy Research Working Paper Series 4230, The World Bank.
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