Wealth, Tastes, and Entrepreneurial Choice

47 Pages Posted: 28 Oct 2015

See all articles by Erik Hurst

Erik Hurst

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Benjamin W. Pugsley

University of Notre Dame - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: October 01, 2015

Abstract

The nonpecuniary benefits of managing a small business are a first order consideration for many nascent entrepreneurs, yet the preference for business ownership is mostly ignored in models of entrepreneurship and occupational choice. In this paper, we study a population with varying entrepreneurial tastes and wealth in a simple general equilibrium model of occupational choice. This choice yields several important results: (1) entrepreneurship can be thought of as a normal good, generating wealth effects independent of any financing constraints; (2) nonpecuniary entrepreneurs select into small-scale firms; and (3) subsidies designed to stimulate more business entry can have regressive distributional effects. Despite abstracting from other important considerations such as risk, financing constraints, and innovation, we show that nonpecuniary compensation is particularly relevant in discussions of small businesses.

Keywords: entrepreneurship, non-pecuniary benefits

Suggested Citation

Hurst, Erik and Pugsley, Benjamin W., Wealth, Tastes, and Entrepreneurial Choice (October 01, 2015). US Census Bureau Center for Economic Studies Paper No. CES-WP- 15-34. Available at SSRN: https://ssrn.com/abstract=2681028 or http://dx.doi.org/10.2139/ssrn.2681028

Erik Hurst (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Benjamin W. Pugsley

University of Notre Dame - Department of Economics ( email )

Notre Dame, IN 46556
United States

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