Risk taking by entrepreneurs

Galina Vereshchagina, Hugo A. Hopenhayn

Research output: Contribution to journalArticlepeer-review

62 Scopus citations

Abstract

Entrepreneurs bear substantial risk, but empirical evidence shows no sign of a positive premium. This paper develops a theory of endogenous entrepreneurial risk taking that explains why self-financed entrepreneurs may find it optimal to invest in risky projects offering no risk premium. Consistently with empirical evidence, the model predicts that poorer entrepreneurs are more likely to undertake risky projects. It also finds that incentives for risk taking are stronger when agents are impatient. (JEL G31, G32, L25, L26).

Original languageEnglish (US)
Pages (from-to)1808-1830
Number of pages23
JournalAmerican Economic Review
Volume99
Issue number5
DOIs
StatePublished - Dec 2009

ASJC Scopus subject areas

  • Economics and Econometrics

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