Homeownership and Entrepreneurship: The Role of Commitment and Mortgage Debt

43 Pages Posted: 8 Jun 2013

See all articles by Philippe Bracke

Philippe Bracke

Bank of England - Structural Economic Analysis Division; London School of Economics & Political Science (LSE)

Christian A. L. Hilber

London School of Economics (LSE) - Department of Geography and Environment; London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP); Spatial Economics Research Centre (SERC)

Olmo Silva

London School of Economics & Political Science (LSE) - Department of Geography and Environment; London School of Economics (LSE) - Centre for Economic Performance; Institute for the Study of Labor (IZA)

Abstract

We study the link between homeownership and entrepreneurship using a model of occupational choice and housing tenure where homeowners commit a fixed budget to mortgage payments. Our model predicts that: (i) mortgage commitments, by amplifying risk aversion, diminish the likelihood that homeowners start a business; (ii) the negative link between homeownership and entrepreneurship is increasing in mortgage debt; and (iii) the negative relation is more pronounced for entrepreneurs in risky sectors. Exploiting the longitudinal dimension of the British Household Panel Survey to control for unobservables, we test and confirm these predictions. Leveraged home-buyers are 30% less likely to become entrepreneurs.

Keywords: entrepreneurship, homeownership, commitment

JEL Classification: L26, D14, G11, R21

Suggested Citation

Bracke, Philippe and Hilber, Christian A. L. and Silva, Olmo, Homeownership and Entrepreneurship: The Role of Commitment and Mortgage Debt. IZA Discussion Paper No. 7417. Available at SSRN: https://ssrn.com/abstract=2276309

Philippe Bracke (Contact Author)

Bank of England - Structural Economic Analysis Division ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Christian A. L. Hilber

London School of Economics (LSE) - Department of Geography and Environment ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Spatial Economics Research Centre (SERC) ( email )

United Kingdom

Olmo Silva

London School of Economics & Political Science (LSE) - Department of Geography and Environment ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

London School of Economics (LSE) - Centre for Economic Performance

Houghton Street
London WC2A 2AE
United Kingdom

Institute for the Study of Labor (IZA)

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

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