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Entrepreneurship, Economic Risks, and Risk-Insurance in the Welfare State

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Listed author(s):
  • Pekka Ilmakunnas
  • Vesa Kanniainen
  • Uki Lammi

Abstract

We find strong evidence in the OECD country panel data to support the Knightian view that non-diversifiable economic risks shape the equilibrium entrepreneurship in an occupational choice model. Differential social insurance of entrepreneurial and labor risk is found to be statistically significant and detrimental to entrepreneurship. The crowding-out effect of public production of private goods on entrepreneurship dominates the crowding-in effect of public production of public goods. Evidence is found for the proposition that the rate of entrepreneurship is positively related to the degree of income inequality and negatively to the union power in the economy. The results suggest that a high living standard also has a detrimental effect on entrepreneurial risk-taking.

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Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 99-03.

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Handle: RePEc:kud:epruwp:99-03
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Find related papers by JEL classification:
  • D2 - Microeconomics - - Production and Organizations
  • G3 - Financial Economics - - Corporate Finance and Governance
  • H1 - Public Economics - - Structure and Scope of Government
  • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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  1. Sinn, Hans-Werner, 1995. " A Theory of the Welfare State," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 495-526, December.
  2. Holtz-Eakin, Douglas & Joulfaian, David & Rosen, Harvey S, 1994. "Sticking It Out: Entrepreneurial Survival and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 53-75, February.
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Cited by:

  1. Mikko Leppämäki & Vesa Kanniainen, 2000. "Entrepreneurship in a Unionised Economy," CESifo Working Paper Series 379, CESifo Group Munich.
  2. Ingrid Verheul & Andre van Stel & Roy Thurik, 2004. "Explaining female and male entrepreneurship across 29 countries," Papers on Entrepreneurship, Growth and Public Policy 2004-08, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
  3. Mikael Stenkula, 2012. "Taxation and entrepreneurship in a welfare state," Small Business Economics, Springer, vol. 39(1), pages 77-97, July.
  4. Vesa Kanniainen & Seppo Kari & Jouko Ylä-Liedenpohja, 2005. "The Start-Up and Growth Stages in Enterprise Formation: The “New View” of Dividend Taxation Reconsidered," CESifo Working Paper Series 1476, CESifo Group Munich.
  5. Robert Holzmann & Steen Jørgensen, 2001. "Social Risk Management: A New Conceptual Framework for Social Protection, and Beyond," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(4), pages 529-556, August.
  6. Vesa Kanniainen & Seppo Kari & Jouko Ylä-Liedenpohja, 2007. "Nordic dual income taxation of entrepreneurs," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(4), pages 407-426, August.
  7. Howard Frederick & Erik Monsen, 2011. "New Zealand’s perfect storm of entrepreneurship and economic development," Small Business Economics, Springer, vol. 37(2), pages 187-204, September.
  8. Sander Wennekers & Roy Thurik & André Stel & Niels Noorderhaven, 2007. "Uncertainty avoidance and the rate of business ownership across 21 OECD countries, 1976–2004," Journal of Evolutionary Economics, Springer, vol. 17(2), pages 133-160, April.
  9. Mario Duarte Canever & Volnei Krause Kohls & Morgan Yuri Teles Machado & André Carraro, 2008. "Entrepreneurship in the Rio Grande do Sul, Brazil: the determinants and consequences for the municipal development," Anais do XXXVI Encontro Nacional de Economia [Proceedings of the 36th Brazilian Economics Meeting] 200807091102140, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  10. Sander Wennekers & André Stel & Roy Thurik & Paul Reynolds, 2008. "Nascent entrepreneurship and the level of economic development," Small Business Economics, Springer, vol. 30(3), pages 325-325, March.
  11. Ant Bozkaya & William R. Kerr, 2009. "Labor Regulations and European Private Equity," Working Papers CEB 09-055.RS, ULB -- Universite Libre de Bruxelles.
  12. Andreas Wagener, 2000. "Entrepreneurship and Social Security," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 57(3), pages 284-284, May.
  13. Concepción Román & Emilio Congregado & José Millán, 2011. "Dependent self-employment as a way to evade employment protection legislation," Small Business Economics, Springer, vol. 37(3), pages 363-392, October.

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