The Winners Curse of Human Capital
We extend a model developed by Evans) 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. Empirical analysis reveals that entrepreneurs with greater levels of human capital and entrepreneurial abilities have both greater financial wealth and greater levels of start-up capital pointing to the endogenous nature of credit constraints. Start-ups are generally financially constrained when measured by the impact on start-up capital of predicted household income. Greater levels of human capital relaxes financial constraints, apparently due to greater productivity of human capital in wage work than in self-employment. Paradoxically, then, 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.
|Date of creation:||Feb 1999|
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NBER Working Papers
4494, National Bureau of Economic Research, Inc.
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373, London School of Economics - Centre for Labour Economics.
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- 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.
- Timothy Bates & Caren Grown, 1991. "Commercial Bank Lending Practices And The Development Of Black-Owned Construction Companies," Working Papers 91-9, Center for Economic Studies, U.S. Census Bureau.
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