American Economic Review Vol. 99 No. 5 2009

Risk Taking by Entrepreneurs

Galina Vereshchagina¹; Hugo A. Hopenhayn²

¹ Arizona State University, Department of Economics, Tempe, AZ 85287. · ² University of California–Los Angeles, Department of Economics, Bunche Hall 9353, Box 951477, Los Angeles, CA 90095.

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 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.

DOI

10.1257/aer.99.5.1808

Volume

99

Issue

5

Pages

1808-1830

Language

en

Sources

openalex bibtex:phds-export.bib crossref

Cite

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