The Winner's Curse of Human Capital

Thomas Astebro and I. Bernhardt

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Abstract: We extend a model developed by Evans and Jovanovic (1989) to explain when start-ups are credit constrained. We show that the magnitude of the credit constraint is conditioned by the relative productivity of human capital in both wage work and self-employment. The effect of predicted household income on start-up capital is used to indicate the existence of financial constraint. Empirical analysis reveals that entrepreneurs with high human capital have both greater financial wealth and greater levels of start-up capital pointing to the endogenous nature of credit constraints. High human capital relaxes financial constraints, apparently due to greater productivity of human capital in wage work than in self-employment. Those who are the least likely to be credit constrained in self-employment are those that are least likely to switch into self-employment,and vice versa.

Keywords: liquidity constraints; entrepreneurship; human capital; labour economics (search for similar items in EconPapers)
Date: 2005-01-27
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Citations: View citations in EconPapers (35)

Published in Small Business Economics, 2005, 24 (1), pp.63-78. ⟨10.1007/s11187-005-3097-y⟩

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Working Paper: The Winner's Curse of Human Capital (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00476901

DOI: 10.1007/s11187-005-3097-y

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