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Risk Taking by Entrepreneurs

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Abstract

Entrepreneurs bear substantial risk, but empirical evidence shows no sign of a positive premium. This paper develops a theory of endogenous entrepreneurial risk taking that explains why self-financed entrepreneurs may find it optimal to invest into risky projects offering no risk premium. The model has also a number of implications for firm dynamics supported by empirical evidence, such as a positive correlation between survival, size, and firm age.

Suggested Citation

  • Hugo A. Hopenhayn & Galina Vereshchagina, 2003. "Risk Taking by Entrepreneurs," RCER Working Papers 500, University of Rochester - Center for Economic Research (RCER).
  • Handle: RePEc:roc:rocher:500
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    More about this item

    Keywords

    occupational choice; risk taking; firm dynamics; borrowing constraints.;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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