Monopolistic Competition and Entrepreneurial RiskRTaking -Too many Cooks Spoil the Broth (but Everyone is better off) -
This paper investigates the effects of monopolistic competition on entrepreneurial riskRtaking in a general equilibrium model. In this context, occupational choice of risk averse agents is biased towards rm ownership. In this case, the inef ciencies due to the presence of nonRdiversi able risk are partly compensated by inef ciencies arising from imperfect competition. Comparative static results show that too many rms remain in the market for an increase in the degree of risk aversion, thereby mutually deteriorating pro t opportunities, which provides an explanation for the empirically observed comparably low risk premium on entrepreneurial risk.
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- Maitreesh Ghatak & Massimo Morelli & Tomas Sjostrom, 2002. "Credit Rationing, Wealth Inequality, and Allocation of Talent," Economics Working Papers 0026, Institute for Advanced Study, School of Social Science.
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