Risk Taking By Entrepreneurs
42 Pages Posted: 4 Jun 2007
Date Written: October 2006
Entrepreneurs bear substantial risk, but empirical evidence shows no sign of a positive premium. This paper develops a theory of endogenous entrepreneurial risk taking that explains why self-financed entrepreneurs may find it optimal to invest in risky projects offering no risk premium. The model has also a number of implications for firm dynamics supported by empirical evidence, such as a positive correlation between survival, size, and firm age.
Keywords: entrepreneurship, risk taking, private equity, occupational choice, firm dynamics
JEL Classification: D9, E21, L16
Suggested Citation: Suggested Citation