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Risk Aversion and Entrepreneurship: New Evidence Exploiting Exposure to Massive Earthquakes in Italy

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  • de Blasio, Guido

    () (Bank of Italy)

  • De Paola, Maria

    () (University of Calabria)

  • Poy, Samuele

    () (Università Cattolica del Sacro Cuore)

  • Scoppa, Vincenzo

    () (University of Calabria)

Abstract

This paper investigates the impact of risk attitudes on the decision to become an entrepreneur. In contrast to previous research, we handle endogeneity issues relying on an instrumental variables strategy considering as a source of exogenous variation in risk aversion the early exposure to a massive earthquake. Using several waves of the Bank of Italy Survey of Household Income and Wealth (SHIW), we find that individuals experiencing an earthquake become significantly more risk averse. Second-stage estimates show that risk aversion has a significant negative impact on the probability of becoming an entrepreneur.

Suggested Citation

  • de Blasio, Guido & De Paola, Maria & Poy, Samuele & Scoppa, Vincenzo, 2018. "Risk Aversion and Entrepreneurship: New Evidence Exploiting Exposure to Massive Earthquakes in Italy," IZA Discussion Papers 12057, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp12057
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    More about this item

    Keywords

    entrepreneurship; risk attitudes; natural disasters; instrumental variables;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation

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