Relative Wealth Concerns and Entrepreneurship

23 Pages Posted: 16 Mar 2011

See all articles by Manoj Atolia

Manoj Atolia

Florida State University - Department of Economics

Kislaya Prasad

Florida State University - Department of Economics

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Date Written: March 14, 2011

Abstract

We develop a model of entrepreneurship in which market frictions limit the possibilities for diversifying entrepreneurial risk. A concern for relative standing arises even though individuals consume only standard commodities. In contrast to complete markets, an increase in sector-specific 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.

Suggested Citation

Atolia, Manoj and Prasad, Kislaya, Relative Wealth Concerns and Entrepreneurship (March 14, 2011). Economica, Vol. 78, Issue 310, pp. 294-316, 2011. Available at SSRN: https://ssrn.com/abstract=1786228 or http://dx.doi.org/10.1111/j.1468-0335.2009.00812.x

Manoj Atolia (Contact Author)

Florida State University - Department of Economics ( email )

Tallahassee, FL 30306-2180
United States
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HOME PAGE: http://mailer.fsu.edu/~matolia/

Kislaya Prasad

Florida State University - Department of Economics ( email )

Tallahassee, FL 30306-2180
United States

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