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A dynamic model of entrepreneurship with borrowing constraints: theory and evidence
Open accessAbstract
Does wealth beget wealth and entrepreneurship, or is entrepreneurship mainly determined by an individual’s ability? A large literature studies the relationship between wealth and entry to entrepreneurship to inform this question. This paper shows that in a dynamic model, the existence of financial constraints to the creation of businesses implies a non-monotonic relationship between wealth and entry into entrepreneurship: the probability of becoming an entrepreneur as a function of wealth is increasing for low wealth levels—as predicted by standard static models—but it is decreasing for higher wealth levels. U.S. data are used to study the qualitative and quantitative predictions of the dynamic model. The welfare costs of borrowing constraints are found to be significant, around 6% of lifetime consumption, and are mainly due to undercapitalized entrepreneurs (intensive margin), rather than to able people not starting businesses (extensive margin).
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Cites
On the Size Distribution of Business Firms
Lucas, R. E. (1978) · The Bell Journal of Economics · doi:10.2307/3003596 · Cited by 3,236
Cited by
Underinvestment in a Profitable Technology: The Case of Seasonal Migration in Bangladesh
(2014) · Econometrica · doi:10.3982/ecta10489 · Cited by 710
Metadata
- Authors
- Buera, F. J.
- Venue
- Annals of Finance
- Published
- 2009-04-05
- Volume
- 5
- Issue
- 3-4
- Pages
- 443-464
- ISSN
- 1614-2446 (ISSN-L)
- 1614-2454
- OpenAlex
- W2080774703
- Cited by
- 225
- References
- 1
- FWCI
- 28.26
- Type
- journal article
- Language
- en
- Open access
- hybrid
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- Buera, F. J. (2009). A dynamic model of entrepreneurship with borrowing constraints: theory and evidence. Annals of Finance. https://doi.org/10.1007/s10436-009-0121-2
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Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
