Mortgage debt and entrepreneurship
Christian Hilber () and
LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library
We study the link between mortgage debt and entrepreneurship using a model of occupational choice and housing tenure in a setting where loans are recourse|like in the UK and several US states. Our model shows that as long as the mortgage interest rate exceeds the risk-free rate: (i) mortgage debt diminishes the likelihood of entrepreneurship by amplifying risk aversion; and (ii) the negative relation between mortgage debt and entrepreneurship increases with income volatility. Our model also shows that the link between housing equity and entrepreneurship is ambiguously signed because of competing portfolio and wealth effects. We use the British Household Panel Survey to test and confirm the model predictions, and deal with unobservable heterogeneity employing three research designs | individual fixed effects, housing-spell fixed effects, and instrumental variables. A one standard deviation increase in leverage reduces the probability of entrepreneurship by 10-20 percent
JEL-codes: N0 G32 F3 G3 (search for similar items in EconPapers)
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Published in Journal of Urban Economics, 1, January, 2018, 103, pp. 52-66. ISSN: 0094-1190
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Journal Article: Mortgage debt and entrepreneurship (2018)
Working Paper: Mortgage debt and entrepreneurship (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:84703
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