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The Winner's Curse of Human Capital

Author

Listed:
  • Thomas Astebro

    (Joseph L. Rotman School of Management - University of Toronto)

  • I. Bernhardt

Abstract

We extend a model developed by Evans and Jovanovic (1989) 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. The effect of predicted household income on start-up capital is used to indicate the existence of financial constraint. Empirical analysis reveals that entrepreneurs with high human capital have both greater financial wealth and greater levels of start-up capital pointing to the endogenous nature of credit constraints. High human capital relaxes financial constraints, apparently due to greater productivity of human capital in wage work than in self-employment. 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.

Suggested Citation

  • Thomas Astebro & I. Bernhardt, 2005. "The Winner's Curse of Human Capital," Post-Print hal-00476901, HAL.
    • Handle: RePEc:hal:journl:hal-00476901
    DOI: 10.1007/s11187-005-3097-y
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