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A Unified Model of Entrepreneurship Dynamics / Chong Wang, Neng Wang, Jinqiang Yang.
- Format:
- Book
- Author/Creator:
- Wang, Chong.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w16843.
- NBER working paper series no. w16843
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2011.
- Summary:
- We develop an incomplete-markets q-theoretic model to study entrepreneurship dynamics. Precautionary motive, borrowing constraints, and capital illiquidity lead to underinvestment, conservative debt use, under-consumption, and less risky portfolio allocation. The endogenous liquid wealth-illiquid capital ratio w measures time-varying financial constraint. The option to accumulate wealth before entry is critical for entrepreneurship. Flexible exit option is important for risk management purposes. Investment increases and the private marginal value of liquidity decreases as w decreases and exit becomes more likely, contrary to predictions of standard financial constraint models. We show that the idiosyncratic risk premium is quantitatively significant, especially for low w.
- Notes:
- Print version record
- March 2011.
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