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Wealth, tastes, and entrepreneurial choice

Erik Hurst () and Benjamin Pugsley ()

No 747, Staff Reports from Federal Reserve Bank of New York

Abstract: The nonpecuniary benefits of managing a small business are a first order consideration for many nascent entrepreneurs, yet the preference for business ownership is mostly ignored in models of entrepreneurship and occupational choice. In this paper, we study a population with varying entrepreneurial tastes and wealth in a simple general equilibrium model of occupational choice. This choice yields several important results: (1) entrepreneurship can be thought of as a normal good, generating wealth effects independent of any financing constraints; (2) nonpecuniary entrepreneurs select into small-scale firms; and (3) subsidies designed to stimulate more business entry can have regressive distributional effects. Despite abstracting from other important considerations such as risk, financing constraints, and innovation, we show that nonpecuniary compensation is particularly relevant in discussions of small businesses.

Keywords: entrepreneurship; non-pecuniary benefits (search for similar items in EconPapers)
JEL-codes: J01 L20 L26 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ent, nep-ino and nep-sbm
Date: 2015-10-01
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Related works:
Chapter: Wealth, Tastes, and Entrepreneurial Choice (2016) Downloads
Working Paper: Wealth, Tastes, and Entrepreneurial Choice (2015) Downloads
Working Paper: Wealth, Tastes, and Entrepreneurial Choice (2015) Downloads
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