Relative Wealth Concerns and Entrepreneurship

42 Pages Posted: 16 Oct 2008 Last revised: 4 Nov 2008

See all articles by Manoj Atolia

Manoj Atolia

Florida State University - Department of Economics

Kislaya Prasad

University of Maryland - Robert H. Smith School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: October 2008

Abstract

We develop a model of occupational choice and entrepreneurship in which market frictions limit the possibilities for diversifying entrepreneurial risk. A concern for relative standing arises in this model even though individuals care only about the consumption of standard commodities. In contrast to the complete markets outcome, an increase in aggregate risk increases entrepreneurship due to relative wealth concerns. A change in the profile of the economy to include more risk-averse people results in an even greater increase in entrepreneurship. Thus, relative wealth concerns mitigate the reduction in entrepreneurship arising from the non-diversifiability of entrepreneurial risk. We examine the effects of uncertainty about economic policies such as market-based reforms on entrepreneurship.

Keywords: Entrepreneurship, risk, occupational choice, policy uncertainty, relative wealth concerns

JEL Classification: D84, J24, O11, O12

Suggested Citation

Atolia, Manoj and Prasad, Kislaya, Relative Wealth Concerns and Entrepreneurship (October 2008). Available at SSRN: https://ssrn.com/abstract=1284727 or http://dx.doi.org/10.2139/ssrn.1284727

Manoj Atolia (Contact Author)

Florida State University - Department of Economics ( email )

Tallahassee, FL 30306-2180
United States
+1.850.644.7088 (Phone)
+1.850.644.4535 (Fax)

HOME PAGE: http://mailer.fsu.edu/~matolia/

Kislaya Prasad

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

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