Wealth, Tastes, and Entrepreneurial Choice

Erik G. Hurst, Benjamin W. Pugsley

Chapter in NBER book Measuring Entrepreneurial Businesses: Current Knowledge and Challenges (2017), John Haltiwanger, Erik Hurst, Javier Miranda, and Antoinette Schoar, editors (p. 111 - 151)
Conference held December 16-17, 2014
Published in September 2017 by University of Chicago Press
© 2017 by the National Bureau of Economic Research
in NBER Book Series Studies in Income and Wealth

The non-pecuniary benefi ts of managing a small business are a fi rst order consideration for many nascent entrepreneurs, yet the preference for business ownership is mostly ignored in models of entrepreneurship and occupational choice. In this paper, we study a population with varying entrepreneurial tastes and wealth in a simple general equilibrium model of occupational choice. This choice yields several important results: (1) entrepreneurship can be thought of as a normal good, generating wealth eff ects independent of any fi nancing constraints, (2) non-pecuniary entrepreneurs select into small scale fi rms, (3) subsidies designed to stimulate more business entry can have regressive distributional eff ects. Despite abstracting from other important considerations such as risk, fi nancing constraints, and innovation, we show that non-pecuniary compensation is particularly relevant in discussions of small businesses.

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This chapter first appeared as NBER working paper w21644, Wealth, Tastes, and Entrepreneurial Choice, Erik G. Hurst, Benjamin W. Pugsley
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