Template-Type: ReDIF-Paper 1.0
Author-Name: Andrew F. Newman 	
Author-X-Name-First: Andrew F.
Author-X-Name-Last: Newman
Author-Email: afnewman@bu.edu
Author-Workplace-Name: Institute for Economic Development, Boston University
Title: Risk-Bearing and Entrepreneurship
Abstract: In the “Knightian” theory of entrepreneurship, entrepreneurs provide insurance to workers by paying fixed wages and bear all the risk of production. This paper endogenizes entrepreneurial risk by allowing for optimal insurance contracts as well as the occupational selfselection. Moral hazard prevents full insurance; increases in an agent’s wealth then entail increases in risk borne. Thus, even under decreasing risk aversion, there are robust instances in which workers are wealthier than entrepreneurs. This empirically implausible result suggests that
risk-based explanations for entrepreneurship are inadequate.
Length: 23 pages
Creation-Date: 2007-02
Revision-Date: 
Publication-Status: 
File-URL:http://www.bu.edu/econ/ied/dp/papers/dp-162Newman.pdf
File-Format: Application/pdf
File-Function: 
Number: dp-162
Classification-JEL: 
Keywords: 
Handle: RePEc:bos:iedwpr:dp-162