Entrepreneurial Tail Risk: Implications for Employment Dynamics
No 963, 2013 Meeting Papers from Society for Economic Dynamics
Starting a new business is risky. This paper asks how entrepreneurial productivity risk has changed over time in the US and how this has affected employment. I estimate this risk using micro data on the size distribution of new businesses and their exit rates. The paper distinguishes upside and downside risk and analyzes their effects in a tractable dynamic general equilibrium model of entrepreneurship. At the heart of the model is the decision of potential entrepreneurs whether to start a new business in the face of uninsurable productivity risk. Applied to US time series data, structural estimates suggest that higher upside risk explains much of the high job creation in the late 1990s. Over the entire sample period, time variation in risk explains 40-55% of the variation in employment of new businesses. Reduced form results show that this relationship is strongest in IT-related industries. Counterfactual simulations show that the explanatory power of a model with a single risk factor drops by 30-50% compared to the baseline estimates.
References: Add references at CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.
Journal Article: Entrepreneurial tail risk: Implications for employment dynamics (2019)
Working Paper: Entrepreneurial tail risk: implications for employment dynamics (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:red:sed013:963
Access Statistics for this paper
More papers in 2013 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().