Tradeoff between Entrepreneurship and Lineage: Evidence from China’s Nationwide Two-Child Policy

Abstract

We study how entrepreneurial choices are influenced by households’ child-rearing opportunities. Employing a difference-in-differences approach by exploiting the introduction of China’s nationwide two-child policy, we find a decreased (increased) likelihood of entrepreneurial participation (having a child) in households with a married woman aged between 20 and 40 years old. This tradeoff can be attributed to family risk consideration – we document lower revealed risk preference of households experiencing a recent childbirth and find stronger policy effects in households lacking intra-household risk-sharing and in those facing higher uncertainty about career prospects. More importantly, we find that the policy effect is stronger in families with the first child being female due to son preference. Our empirical evidence highlights demographic policy can give rise to unintended consequences in the determent of entrepreneurship.

Keywords: Entrepreneurship, Family Planning Policy, Household Economics, Risk Preference, Intra-household Risk Sharing

JEL Classification: I18, M40, G30, D80, O32