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Relative Wealth Concerns and Entrepreneurship

Author

Listed:
  • Manoj Atolia

    () (Department of Economics, Florida State University)

  • Kislaya Prasad

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

Abstract

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.

Suggested Citation

  • Manoj Atolia & Kislaya Prasad, 2007. "Relative Wealth Concerns and Entrepreneurship," Working Papers wp2008_11_02, Department of Economics, Florida State University, revised Oct 2008.
  • Handle: RePEc:fsu:wpaper:wp2008_11_02
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    File Function: First version, 2007-08
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    Cited by:

    1. Stefan Schneck, 2013. "Nonlinear evaluation of status and signal effects," Evidence-based HRM: A Global Forum for Empirical Scholarship, Emerald Group Publishing, vol. 1(2), pages 112-129, October.
    2. Stefan Schneck, 2011. "The Effect of Relative Standing on Considerations about Self-Employment," SOEPpapers on Multidisciplinary Panel Data Research 426, DIW Berlin, The German Socio-Economic Panel (SOEP).
    3. Nabil Abou Lebdi & Katrin Hussinger, 2016. "Startup Innovation during the Past Economic Crisis," CREA Discussion Paper Series 16-27, Center for Research in Economic Analysis, University of Luxembourg.

    More about this item

    Keywords

    Entrepreneurship; risk; occupational choice; policy uncertainty; relative wealth concerns;

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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