Profit sharing with heterogeneous entrepreneurial prowess

Renato Cardoso

No 265, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: This paper analyzes the impact of profit sharing on the incentives that individuals face to set up their own business. It presents a model of capital accumulation in which individuals are equally skilled to be workers but differ in their abilities to manage a firm Given an exogenous profit sharing parameter, an individual chooses whether to be an employer or an employee in order to maximize his net income. It is shown that profit sharing can inhibit entrepreneurial initiatives, reducing the number of firms in operation, the aggregate output and the economy's long run capital stock.

Date: 1995-07
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Citations: View citations in EconPapers (6)

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