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 in risky projects offering no risk premium. Consistently with empirical evidence, the model predicts that poorer entrepreneurs are more likely to undertake risky projects. It also finds that incentives for risk taking are stronger when agents are impatient. (JEL G31, G32, L25, L26)

Team production takes advantage of technological complementarities but comes with the cost of free-ridership. When workers differ in skills, the choice of sorting pattern may be associated with a nontrivial trade-off between exploiting the technological complementarities and minimizing the cost of free-ridership. This paper demonstrates that whether such a trade-off arises depends (i) on how the power of incentives required for effort provision varies with workers’ types, and (ii) on whether the workers are organized for production in partnerships or in corporations. These results have implications for how production is organized in different industries—in partnerships or in corporations. (JEL D21, D82, G32, M12, M54)