Liquidity, Risk, and Occupational Choices

31 Pages Posted: 16 Mar 2011

See all articles by Milo Bianchi

Milo Bianchi

University of Toulouse 1 - Toulouse School of Economics (TSE)

Matteo Bobba

Inter-American Development Bank (IDB) - Research Department

Date Written: December 23, 2010

Abstract

We explore which financial constraints matter the most in the choice of becoming an entrepreneur. We consider a randomly assigned welfare program in rural Mexico and show that cash transfers significantly increase entry into entrepreneurship. We then exploit the cross-household variation in the timing of these transfers and find that current occupational choices are significantly more responsive to the transfers expected for the future than to those currently received. Guided by a simple occupational choice model, we argue that the program has promoted entrepreneurship by enhancing the willingness to bear risk as opposed to simply relaxing current liquidity constraints.

Keywords: Financial constraints, entrepreneurship, insurance, liquidity

JEL Classification: O16, G20, L26

Suggested Citation

Bianchi, Milo and Bobba, Matteo, Liquidity, Risk, and Occupational Choices (December 23, 2010). Available at SSRN: https://ssrn.com/abstract=1784263 or http://dx.doi.org/10.2139/ssrn.1784263

Milo Bianchi (Contact Author)

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Matteo Bobba

Inter-American Development Bank (IDB) - Research Department ( email )

1300 New York Ave., NW
Washington, DC 20577
United States

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