Trust is an important determinant of start-up fi nancing. In a simple agentbased model it is determined what the best trusting strategy is for a collective of investors and whether it is rational for an individual investor to deviate from this collective optimum. Trust depends on a measure of social distance and is the precondition for investment. Trust increases and decreases based on whether ...

Why Do Individuals Choose Self-Employment? This paper undertakes an analysis of the motivating factors cited by the self-employed in the UK as reasons for choosing self-employment. Very limited previous research has addressed the question of why individuals report that they have chosen self-employment. Two questions are addressed using large scale labour force survey data for the UK. The first ...

This paper conducts a theoretical and quantitative analysis of how entrepreneurs choose firm size, capital structure, default, and owner consumption to manage firm risk, including how these choices change with risk aversion. We decompose an entrepreneur’s default decision into three elements: the fraction of firm debt; the potential reduction in personal consumption from losing the firm; and th...

We collect information on prenatal testosterone in a large sample of entrepreneurs by measuring the length of their 2th to 4th fingers in face to face interviews. Entrepreneurs with higher exposure to prenatal testosterone (lower second to fourth digit ratio) manage larger firms, are matched with larger firms when acquire control and experience faster average growth over the years they manage t...

Who Are the Microenterprise Owners? Evidence from Sri Lanka on Tokman v. de Soto Is the vast army of the self-employed in low income countries a source of employment generation? We use data from surveys in Sri Lanka to compare the characteristics of own account workers (non-employers) with wage workers and with owners of larger firms. We use a rich set of measures of background, ability, and at...

We study the welfare cost of market incompleteness in a generalized Bewley model where idiosyncratic risk takes the form of entrepreneurial productivity shocks. Market incompleteness in our framework has two dimensions. First, in the Bewley tradition, only a limited set of instruments for consumption smoothing is available. Second, entrepreneurs’ capital rental is subject to collateral constrai...

How important are differences in owner personal characteristics (risk tolerance or optimism) versus the environment in which a firm operates (bankruptcy institutions or access to credit) for firm financial structure, size, owner net-worth and welfare? To answer this question we construct a dynamic, computable model with heterogeneous agents and endogenous default in which entrepreneurs weigh th...

This paper investigates the impact of new firms’ quality on the magnitude of their employment effects. Our results clearly show that the quality of start-ups, measured by their affiliation with sectors and innovative industries, strongly influences the direct and the overall employment contribution of new firms. In particular, start-ups in manufacturing industries generate larger direct and ove...

Traditional innovation models assume that new ideas are developed up to the point where the benefit of the marginal project is just equal to the cost. Because labor is a key input to innovation, when the opportunity cost of time is lower, such as during school breaks or time o↵ from work, then such models predict that the number of ideas developed will be greater, but the average quality will b...

What drives women out of entrepreneurship? The joint role of testosterone and culture* The ratio of second to fourth digit (2D4D) has been shown to correlate negatively with entrepreneurial skills and financial success. We document that in a sample of entrepreneurs women have a lower 2D4D ratio than men, in sharp contrast with the features of the distribution in random samples. Exploiting varia...