IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Risk-Bearing and Entrepreneurship

  • Andrew F. Newman


    (Institute for Economic Development, Boston University)

In the “Knightian” theory of entrepreneurship, entrepreneurs provide insurance to workers by paying fixed wages and bear all the risk of production. This paper endogenizes entrepreneurial risk by allowing for optimal insurance contracts as well as the occupational selfselection. Moral hazard prevents full insurance; increases in an agent’s wealth then entail increases in risk borne. Thus, even under decreasing risk aversion, there are robust instances in which workers are wealthier than entrepreneurs. This empirically implausible result suggests that risk-based explanations for entrepreneurship are inadequate.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Gillian Gurish)

Download Restriction: no

Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - The Institute for Economic Development Working Papers Series with number dp-162.

in new window

Length: 23 pages
Date of creation: Feb 2007
Date of revision:
Handle: RePEc:bos:iedwpr:dp-162
Contact details of provider: Postal: 270 Bay State Road, Boston, MA 02215
Phone: 617-353-4389
Fax: 617-353-4449
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Edward P. Lazear, 2002. "Entrepreneurship," NBER Working Papers 9109, National Bureau of Economic Research, Inc.
  2. repec:tpr:qjecon:v:104:y:1989:i:2:p:399-415 is not listed on IDEAS
  3. Kanbur, S M, 1979. "Of Risk Taking and the Personal Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 769-97, August.
  4. W. Bentley MacLeod & Daniel Parent, 1998. "Job Characteristics and the Form of Compensation," CIRANO Working Papers 98s-08, CIRANO.
  5. Rogerson, William P, 1985. "Repeated Moral Hazard," Econometrica, Econometric Society, vol. 53(1), pages 69-76, January.
  6. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
  7. Morduch, Jonathan, 1994. "Poverty and Vulnerability," American Economic Review, American Economic Association, vol. 84(2), pages 221-25, May.
  8. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
  9. Kim, Son Ku, 1995. "Efficiency of an Information System in an Agency Model," Econometrica, Econometric Society, vol. 63(1), pages 89-102, January.
  10. Daniel A. Ackerberg & Maristella Botticini, 1999. "Endogenous Matching and the Empirical Determinants of Contract Form," Boston University - Institute for Economic Development 92, Boston University, Institute for Economic Development.
  11. Jewitt, Ian, 1988. "Justifying the First-Order Approach to Principal-Agent Problems," Econometrica, Econometric Society, vol. 56(5), pages 1177-90, September.
  12. repec:tpr:qjecon:v:104:y:1989:i:1:p:195-203 is not listed on IDEAS
  13. Dixit, Avinash K, 1989. "Trade and Insurance with Adverse Selection," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 235-47, April.
  14. repec:eme:rlepps:v:18:y:1999:i:1999:p:177-242 is not listed on IDEAS
  15. Mathias Dewatripont & Patrick Bolton, 2005. "Contract theory," ULB Institutional Repository 2013/9543, ULB -- Universite Libre de Bruxelles.
  16. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-48, August.
  17. Banerjee, Abhijit V & Newman, Andrew F, 1994. "Poverty, Incentives, and Development," American Economic Review, American Economic Association, vol. 84(2), pages 211-15, May.
  18. repec:tpr:qjecon:v:90:y:1976:i:4:p:630-49 is not listed on IDEAS
  19. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-98, April.
  20. Brian Wu & Anne Marie Knott, 2006. "Entrepreneurial Risk and Market Entry," Management Science, INFORMS, vol. 52(9), pages 1315-1330, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bos:iedwpr:dp-162. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gillian Gurish)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.