Entrepreneurial activity, risk, and the business cycle

Journal Article (Journal Article)

This paper analyzes a model in which the risk associated with entrepreneurial activity implies that the amount of such activity is procyclical and results in amplification and intertemporal propagation of productivity shocks. In the model risk averse agents choose between a riskless project and a risky project with higher expected output ('the entrepreneurial activity'). Agents who become entrepreneurs need to bear part of the project-specific risk for incentive reasons. More agents become entrepreneurs when productivity is high, because agents are more willing to bear risk and need to bear less risk for incentive reasons. Furthermore, cross-sectional heterogeneity can be countercyclical. © 2003 Elsevier B.V. All rights reserved.

Full Text

Duke Authors

Cited Authors

  • Rampini, AA

Published Date

  • April 1, 2004

Published In

Volume / Issue

  • 51 / 3

Start / End Page

  • 555 - 573

International Standard Serial Number (ISSN)

  • 0304-3932

Digital Object Identifier (DOI)

  • 10.1016/j.jmoneco.2003.06.003

Citation Source

  • Scopus