Does Entrepreneurship Promote Growth? A Model of Occupational Choice with Risk-Attitude Heterogeneous Agents

20 Pages Posted: 27 Feb 2009

See all articles by Neville Nien-Huei Jiang

Neville Nien-Huei Jiang

Vanderbilt University - College of Arts and Science - Department of Economics

Ping Wang

Washington University in St. Louis - Department of Economics; National Bureau of Economic Research (NBER)

Haibin Wu

City University of Hong Kong (CityUHK)

Date Written: February 26, 2009

Abstract

This paper studies whether promoting entrepreneurship is always growth-enhancing under a dynamic general-equilibrium framework in which agents differ in their risk attitude. Less risk averse agents become entrepreneurs who contribute to economic growth through a product variety effect. Workers, who are net savers, also contribute to growth through a loanable fund supply effect. The working of these two effects results in a non-monotone entrepreneurship-economic growth relationship. Due to risk aversion and the presence of an intergenerational externality, both of the two effects are under-valued by individuals. As a result, there can be too less or too much entrepreneurship in the decentralized equilibrium. Although having some of the entrepreneurial risk insured away can be growth-enhancing, it is never optimal to provide full insurance. How changes in the distribution of risk attitude and the degree of uncertainty may affect occupational choice and balanced growth are also examined.

Keywords: Occupational Choice, Entrepreneurial Risk, Balanced Growth

JEL Classification: D90, O4

Suggested Citation

Jiang, Neville Nien-Huei and Wang, Ping and Wu, Haibin, Does Entrepreneurship Promote Growth? A Model of Occupational Choice with Risk-Attitude Heterogeneous Agents (February 26, 2009). Available at SSRN: https://ssrn.com/abstract=1350144 or http://dx.doi.org/10.2139/ssrn.1350144

Neville Nien-Huei Jiang

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States

Ping Wang

Washington University in St. Louis - Department of Economics ( email )

One Brookings Drive
St. Louis, MO 63130
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Haibin Wu (Contact Author)

City University of Hong Kong (CityUHK) ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

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