The Spirit of Capitalism, Entrepreneurship, and Talent Allocation

Yang Ming and Heng-Fu Zou ()

No 618, CEMA Working Papers from China Economics and Management Academy, Central University of Finance and Economics

Abstract: This paper develops a theoretical model to explore the impact of the spirit of capitalism (SOC) on entrepreneurship and the allocative efficiency of talent. In the presence of financial frictions, both individual abilities and wealth play crucial roles in shaping occupational choices. Consequently, individuals with a stronger SOC are more inclined towards entrepreneurship. However, this heightened entrepreneurial activity leads to allocative inefficiencies in talent allocation, as some wealthy but less skilled individuals pursue entrepreneurial ventures. Mitigating financial frictions serves to enhance overall productivity by rectifying this inefficiency, though its influence on entrepreneurship remains uncertain. Conversely, increasing the fraction of individuals with higher SOC yields non-monotonic effects on both aggregate productivity and entrepreneurship. The calibrated model introduces a novel perspective on the decline in entrepreneurship witnessed in the U.S. and other advanced economies over recent decades.

Keywords: spirit of capitalism; entrepreneurship; talent allocation; occupational choice (search for similar items in EconPapers)
JEL-codes: J24 O15 O16 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2024-01-20
New Economics Papers: this item is included in nep-ent, nep-fdg, nep-lma and nep-sbm
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Published in Annals of Economics and Finance, 2024, vol. 25, no. 1, pp. 1-29.

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Journal Article: The Spirit of Capitalism, Entrepreneurship, and Talent Allocation (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:cuf:wpaper:618

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