Entrepreneurial Activity, Risk, and the Business Cycle

34 Pages Posted: 1 Nov 2004

See all articles by Adriano A. Rampini

Adriano A. Rampini

Duke University; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Abstract

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.

Keywords: Agency costs, Entrepreneurship, Risk aversion, Amplification, Propagation

JEL Classification: D82, E32, E44, G39

Suggested Citation

Rampini, Adriano A., Entrepreneurial Activity, Risk, and the Business Cycle. Available at SSRN: https://ssrn.com/abstract=611282

Adriano A. Rampini (Contact Author)

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708
United States
+1 919 660-7797 (Phone)
+1 919 660-8038 (Fax)

HOME PAGE: http://faculty.fuqua.duke.edu/~rampini/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
164
Abstract Views
1,875
Rank
111,711
PlumX Metrics