An Estimated Structural Model of Entrepreneurial Behavior

John Jones and Sangeeta Pratap

American Economic Review, 2020, vol. 110, issue 9, 2859-98

Abstract: Using a rich panel of owner-operated New York dairy farms, we provide new evidence on entrepreneurial behavior. We formulate a dynamic model of farms facing uninsured risks and financial constraints. Farmers derive nonpecuniary benefits from operating their businesses. We estimate the model via simulated minimum distance, matching both production and financial data. We find that financial factors and nonpecuniary benefits are of first-order importance. Collateral constraints and liquidity restrictions inhibit borrowing and the accumulation of capital, especially among high-productivity firms seeking to expand. The nonpecuniary benefits to farming are large and keep small, low-productivity farms in business. Although farmers are risk averse, eliminating uninsured production risk has only modest effects on capital and output.

JEL-codes: C51 D24 G32 Q12 Q14 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (8)

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Working Paper: An Estimated Structural Model of Entrepreneurial Behavior (2017)
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DOI: 10.1257/aer.20170370

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