RQ
“Do liquidity constraints hinder people from starting businesses?” (Evans and Jovanovic 1989, 808).
Situation
Knight (1921) argues bearing risk is fundamental to entrepreneurship, while Schumpeter (1934) argues entrepreneurs identify arbitrage opportunities while capitalists bear the risk.1
Questions
- Difference between moral hazard and adverse selection?
- What is the current role of the U.S. Small Business Administration? How would it be affected by the current (Thu, May 4, 2017 9:28) administration’s proposed budget?
- What was the result of the U.S. Department of Labor’s experiment—giving a sample of unemployment insurance recipients (the option of) start-up funds instead of unemployment benefits?
- What is ‘reduced form’?
(Weber, Malhotra, and Murnighan 2005)
References
Evans, David S., and Boyan Jovanovic. 1989. “An Estimated Model of Entrepreneurial Choice Under Liquidity Constraints.” Journal of Political Economy 97(4): 808–27.
Weber, J. M., D. Malhotra, and J. K. Murnighan. 2005. “Normal Acts of Irrational Trust: Motivated Attributions and the Trust Development Process.” In Research in Organizational Behavior: An Annual Series of Analytical Essays and Critical Reviews, Vol 26, Research in organizational behavior, eds. B. M. Staw and R. M. Kramer., 75–101.
Apparently by risk Evans and Jovanovic (1989) mean financial risk. Liquidity constraints are relevant because either the obstacles to entrepreneurship are internal or external. Under the Knightian account, every prospective entrepreneur has to support themselves, thus variation in entrepreneurial entry is explained by individual wealth. Per Schumpeter, variance in entrepreneurial entry is explained by the effectiveness of capital markets.↩