Insurance, Entrepreneurial Start-Up, and Performance

Tinbergen Institute Discussion Paper 14-040/V

63 Pages Posted: 29 Mar 2014

See all articles by Mette Ejrnæs

Mette Ejrnæs

University of Copenhagen

Stefan Hochguertel

VU University Amsterdam; Tinbergen Institute

Multiple version iconThere are 2 versions of this paper

Date Written: March 26, 2014

Abstract

Availability of (partial) insurance mechanisms is arguably important for the decision of (riskaverse) workers to start up a risky entrepreneurial venture. Using administrative data from Denmark, where unemployment insurance (UI) is available to both wage earners and self-employed on a voluntary basis, we estimate the causal effect of UI cover on the self-employment choice of wage earners after instrumenting for the UI choice. The instruments we use are based on a series of policy variations that took place at three points in time during an observation period spanning three decades: only UI covered individuals could under certain conditions qualify for an early retirement (ER) program. Changes (reforms) in the eligibility conditions of the program that affected different age groups differentially at these three different points in time identify the UI choice process. Results show that the causal effect of insurance on the probability of starting up a venture is positive for would-be entrepreneurs, in contrast to correlations in the data or uninstrumented estimates. Using firm data, we also investigate how the newly insurance-induced entrepreneurs fare relative to their uninsured peers. Results suggest that they survive longer, but are not more likely to employ any workers or to make higher or lower profits.

Keywords: self-employment, insurance, entrepreneurs, unemployment, panel data, early retirement

JEL Classification: C350, J260, J620, J650, L260

Suggested Citation

Ejrnæs, Mette and Hochguertel, Stefan, Insurance, Entrepreneurial Start-Up, and Performance (March 26, 2014). Tinbergen Institute Discussion Paper 14-040/V, Available at SSRN: https://ssrn.com/abstract=2416885 or http://dx.doi.org/10.2139/ssrn.2416885

Mette Ejrnæs (Contact Author)

University of Copenhagen ( email )

Nørregade 10
Copenhagen, København DK-1165
Denmark

Stefan Hochguertel

VU University Amsterdam ( email )

Dept Econ (FEWEB)
De Boelelaan 1105
1081HV Amsterdam
Netherlands
+31 20 59 86033 (Phone)
+31 20 59 89870 (Fax)

Tinbergen Institute

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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