Discussion paper

DP15143 SELECTION INTO ENTREPRENEURSHIP AND SELF-EMPLOYMENT

We study the effects of ability and liquidity constraints on entrepreneurship. We develop a three sector Roy model that differentiates between entrepreneurs and other self-employed to address puzzling gaps that have emerged between theory and evidence on entry into entrepreneurship. The model predicts—and the data confirm—that entrepreneurs are positively selected on highly-remunerated cognitive and non-cognitive human capital skills, but other self-employed are negatively selected on those same abilities; entrepreneurs are positively selected on collateral, but other self-employed are not; and entrepreneurship is procyclical, but self-employment is countercyclical.

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Citation

Rubinstein, Y and R Levine (eds) (2020), “DP15143 SELECTION INTO ENTREPRENEURSHIP AND SELF-EMPLOYMENT”, CEPR Press Discussion Paper No. 15143. https://cepr.org/publications/dp15143