Constrained Efficient Entrepreneurship

In the standard incomplete markets (SIM) model the risk of low future labor income (e.g., unemployment) generates precautionary savings. This way, the relation between capital accumulation and consumption insurance is positive. This is not necessarily the case if agents face entrepreneurship choice....

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Autores principales: Allub, Lian, Ferriere, Axelle, Santaeulàlia-Llopis, Raül, Zheng, Yu
Formato: Objeto de conferencia
Lenguaje:Inglés
Publicado: 2018
Materias:
Ciencias Económicas
standard incomplete markets
constrained efficiency
Acceso en línea:http://sedici.unlp.edu.ar/handle/10915/164434
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SEDICI (UNLP) de Universidad Nacional de La Plata
id I19-R120-10915-164434
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spelling I19-R120-10915-1644342024-04-04T20:01:56Z http://sedici.unlp.edu.ar/handle/10915/164434 Constrained Efficient Entrepreneurship Allub, Lian Ferriere, Axelle Santaeulàlia-Llopis, Raül Zheng, Yu 2018-11 2018 2024-04-04T13:11:46Z en Ciencias Económicas standard incomplete markets constrained efficiency In the standard incomplete markets (SIM) model the risk of low future labor income (e.g., unemployment) generates precautionary savings. This way, the relation between capital accumulation and consumption insurance is positive. This is not necessarily the case if agents face entrepreneurship choice. Entrepreneurs face risky investment and might be willing to trade insurance for accumulation depending on their permanent ability across sectors, idiosyncratic shocks, and wealth. We study the welfare properties of an entrepreneurship choice model using the notion of constrained efficiency where a utilitarian planner dictates occupational choices and savings across risk-free and risky assets, while respecting individual budget constraints. We find that although the planner increases aggregate capital, a result shared with the SIM models, the planner changes the composition of aggregate capital and favors the accumulation of the risky capital employed by entrepreneurs at the cost of insurance. The planner also runs into more debt to finance a higher amount of entrepreneurs, lowering the entrepreneurship productivity threshold of the decentralized economy. All these results are based on a two-period model that we are currently extending to an infinite horizon and realistically calibrated economy. Finally, we investigate policies that can bring the competitive equilibrium allocations closer to the constrained-efficient planner. The set of policies that we plan to investigate include (i) the capitalization of unemployment benefits, (ii) tax reductions for new businesses, and (iii) a “second” chance clause that allows for retakes of (i) and (ii) after previous exits from entrepreneurship (i.e., failure). An extension of the model to the possibility of selling businesses is on the way. Facultad de Ciencias Económicas Objeto de conferencia Objeto de conferencia http://creativecommons.org/licenses/by-nc-sa/4.0/ Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International (CC BY-NC-SA 4.0) application/pdf
institution Universidad Nacional de La Plata
institution_str I-19
repository_str R-120
collection SEDICI (UNLP)
language Inglés
topic Ciencias Económicas
standard incomplete markets
constrained efficiency
spellingShingle Ciencias Económicas
standard incomplete markets
constrained efficiency
Allub, Lian
Ferriere, Axelle
Santaeulàlia-Llopis, Raül
Zheng, Yu
Constrained Efficient Entrepreneurship
topic_facet Ciencias Económicas
standard incomplete markets
constrained efficiency
description In the standard incomplete markets (SIM) model the risk of low future labor income (e.g., unemployment) generates precautionary savings. This way, the relation between capital accumulation and consumption insurance is positive. This is not necessarily the case if agents face entrepreneurship choice. Entrepreneurs face risky investment and might be willing to trade insurance for accumulation depending on their permanent ability across sectors, idiosyncratic shocks, and wealth. We study the welfare properties of an entrepreneurship choice model using the notion of constrained efficiency where a utilitarian planner dictates occupational choices and savings across risk-free and risky assets, while respecting individual budget constraints. We find that although the planner increases aggregate capital, a result shared with the SIM models, the planner changes the composition of aggregate capital and favors the accumulation of the risky capital employed by entrepreneurs at the cost of insurance. The planner also runs into more debt to finance a higher amount of entrepreneurs, lowering the entrepreneurship productivity threshold of the decentralized economy. All these results are based on a two-period model that we are currently extending to an infinite horizon and realistically calibrated economy. Finally, we investigate policies that can bring the competitive equilibrium allocations closer to the constrained-efficient planner. The set of policies that we plan to investigate include (i) the capitalization of unemployment benefits, (ii) tax reductions for new businesses, and (iii) a “second” chance clause that allows for retakes of (i) and (ii) after previous exits from entrepreneurship (i.e., failure). An extension of the model to the possibility of selling businesses is on the way.
format Objeto de conferencia
Objeto de conferencia
author Allub, Lian
Ferriere, Axelle
Santaeulàlia-Llopis, Raül
Zheng, Yu
author_facet Allub, Lian
Ferriere, Axelle
Santaeulàlia-Llopis, Raül
Zheng, Yu
author_sort Allub, Lian
title Constrained Efficient Entrepreneurship
title_short Constrained Efficient Entrepreneurship
title_full Constrained Efficient Entrepreneurship
title_fullStr Constrained Efficient Entrepreneurship
title_full_unstemmed Constrained Efficient Entrepreneurship
title_sort constrained efficient entrepreneurship
publishDate 2018
url http://sedici.unlp.edu.ar/handle/10915/164434
work_keys_str_mv AT allublian constrainedefficiententrepreneurship
AT ferriereaxelle constrainedefficiententrepreneurship
AT santaeulaliallopisraul constrainedefficiententrepreneurship
AT zhengyu constrainedefficiententrepreneurship
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