An Estimated Structural Model of Entrepreneurial Behavior
John Jones () and
Sangeeta Pratap ()
No 17-7, Working Paper from Federal Reserve Bank of Richmond
Using a rich panel of owner-operated New York dairy farms, we provide new evidence on entrepreneurial behavior. We formulate a dynamic model of farms facing uninsured risks and financial constraints. Farmers derive nonpecuniary benefits from operating their businesses. We estimate the model via simulated minimum distance, matching both production and financial data. We find that financial factors and nonpecuniary benefits are of first-order importance. Collateral constraints and liquidity restrictions inhibit borrowing and the accumulation of capital. The nonpecuniary benefits to farming are large and keep small, low-productivity farms in business. Although farmers are risk averse, eliminating uninsured risk has only modest effects on capital and output.
Keywords: Entrepreneurs; financial constraints (search for similar items in EconPapers)
JEL-codes: G31 G32 L26 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-ent and nep-sbm
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