Risk-sharing and entrepreneurship

Matilda Kilström and Paula Roth

Journal of Comparative Economics, 2024, vol. 52, issue 1, 341-360

Abstract: This study examines the impact of risk-sharing on entrepreneurship-driven innovation in an occupational choice model, where entrepreneurs exert effort to innovate. Risk-sharing may increase the number of individuals who become entrepreneurs by limiting the downside risk. The effort of entrepreneurs may, however, be hampered by high risk-sharing if this limits the returns faced by successful entrepreneurs relative to unsuccessful entrepreneurs. We construct a simple theoretical model where risk-sharing may be either private or provided through the welfare state by means of taxation. We show that, in addition to the occupational and effort choice dimensions, the level of public risk-sharing also matters for the characteristics of entrepreneurs.

Keywords: Innovation; Entrepreneurship; Institutions; Risk-sharing (search for similar items in EconPapers)
JEL-codes: E02 O30 O33 O43 P50 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Risk-Sharing and Entrepreneurship (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:52:y:2024:i:1:p:341-360

DOI: 10.1016/j.jce.2023.12.002

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