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Relative Wealth Concerns and Entrepreneurship

  • Manoj Atolia


    (Department of Economics, Florida State University)

  • Kislaya Prasad


    (Robert H. Smith School of Business, University of Maryland)

We develop a model of occupational choice and entrepreneurship in the presence of relative wealth concerns. A concern for relative standing arises even though individuals care only about consumption of standard commodities. We assume that entrepreneurial returns are not diversifiable, which results in less entrepreneurship than would be the case with complete markets. Relative wealth concerns are shown to lead to an increase in entrepreneurship and risk-taking, mitigating this difficulty substantially. When we change the profile of the economy to include more risk-averse people, we find that there is a greater increase in entrepreneurship. We examine the effects of uncertainty about economic policies such as market-based reforms on entrepreneurship.

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File Function: First version, 2007-08
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Paper provided by Department of Economics, Florida State University in its series Working Papers with number wp2008_11_02.

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Length: 42
Date of creation: Aug 2007
Date of revision: Oct 2008
Handle: RePEc:fsu:wpaper:wp2008_11_02
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