Wealth, Enterprise and Credit Policy

Empirical evidence suggests that capital-market constraints prevent low-wealth individuals from setting up in business. This paper shows this finding to be consistent with socially excessive lending and an interest-rate tax being welfare-improving. One feature of the model, banks' inability to identify entrepreneurial quality, leads to excessive bank lending and investment in low-return projects. The reduction in the probability of bankruptcy lowers the cost of borrowing and eliminates deadweight costs and hence promotes entry. If the incentive effects are sufficiently large, wealth and the volume of entrepreneurial activity move together. A key result of the paper is to show that a market equilibrium in which there is a positive relationship between entry and the level of wealth is consistent with either subsidies to inactivity or taxes on interest raising welfare.     

Can entrepreneurship bring happiness? Evidence from China

This paper investigates the relationship between entrepreneurial activities and the happiness of entrepreneurs. We estimate the effects of entrepreneurial decision-making, business experience and other factors on happiness by using China Household Finance Survey data. Our results derived from maximum likelihood estimation methods indicate that entrepreneurial decision-making and entrepreneurial experience affect household happiness significantly. The family well-being is significantly increased if the family is entrepreneurial, and it will be higher if actively entrepreneurial. Both entrepreneurial experience and entrepreneurial investment of time have significantly positive effect on the probability of family well-being. In addition, we find that the mechanism by which entrepreneurship brings happiness to households is through raising household income and wealth, that is, income effects and wealth effects.     

Paradigm Conflict and the Wealth Effects of Blockholder Formation in Private Target Acquisitions

Decision making in public companies follows an organized structure dominated by risk aversion. The decisions in private entrepreneurial firms tend to be driven by overconfidence and reliance on trial and error. Such entrepreneurial attitudes are reinforced by high levels of profitability. The authors argue that this difference in decision-making paradigms limits the wealth effect of blockholder formation by the profitable private target's owners in mergers and acquisitions. Blockholder formation by private target owners is associated with substantial acquirer shareholder gains in the acquisitions of targets with relatively low and moderate profitability levels. To the opposite, the market reacts to blockholder formation by the owners of highly profitable targets with skepticism. Such announcements are associated with insignificant wealth effects overall and substantial acquirer losses in acquisitions in human capital-intensive sectors whereby disagreements are likely to be consequential. Acquirers understand these wealth effects and reduce the extent of stock financing when acquiring highly profitable targets.     

Competitive screening in insurance markets with endogenous wealth heterogeneity

We examine equilibria in competitive insurance markets with adverse selection when wealth differences arise endogenously from unobservable savings or labor supply decisions. The endogeneity of wealth implies that high-risk individuals may ceteris paribus exhibit the lower marginal willingness to pay for insurance than low risks, a phenomenon that we refer to as irregular-crossing preferences. In our model, both risk and patience (or productivity) are privately observable. In contrast to the models in the existing literature, where wealth heterogeneity is exogenously assumed, equilibria in our model no longer exhibit a monotone relation between risk and coverage. Individuals who purchase larger coverage are no longer higher risks, a phenomenon frequently observed in empirical studies.     

Educational choice, endogenous inequality and economic development

This paper investigates the mechanics through which wealth may, in the long run, trickle down from the rich to the poor. In the presence of indivisibilities in investment of human capital and impossibility of borrowing money, investment in education is financed through an intergenerational transfer. In an OLG model where aggregate production requires capital and both skilled and unskilled labor, it is shown that the long run equilibrium outcome depends on the values of few key parameters. A complete characterization of the steady state is provided. Under some configurations of the parameter values a unique invariant equilibrium exists where inequality vanishes asymptotically. Under others, multiple equilibria exist and the equilibrium outcome crucially depends on the initial conditions of the system. These equilibria are characterized by a negative relationship between inequality and economic development.     

Entrepreneurship,Saving, and Social Mobility

This paper examines entrepreneurship in order to analyze, first, the degree to which the opportunity to start or own a business affects the household's saving behavior and the implication of this behavior for the distribution of wealth and, second, the relationship between the extent of entrepreneurship in the economy and socioeconomic mobility, that is, the movement of families across wealth classes over time.First, a number of stylized facts based on data from the Panel Study of Income Dynamics and the Survey of Consumer Finances are outlined. They show relevant differences in asset holdings and wealth mobility between entrepreneurs and workers. Second, a dynamic general equilibrium model with an explicit formalization of the entrepreneurial choice is developed. Through the modeling of the entrepreneurial activities, the model generates a concentration of wealth similar to the one observed in the U.S. economy and it replicates the main patterns of wealth mobility in which entrepreneurs experience higher upward mobility than workers. Journal of Economic Literature Classification Numbers: E21, D31, J23     

企业家冒险倾向、区域冒险精神与企业创新——一个有调节的中介模型

企业家个人特质影响企业决策行为和决策结果，且其作用发挥受情境因素的制约。基于高阶理论，构建区域冒险精神的调节下，企业家冒险倾向通过创新投入对创新绩效产生影响的理论模型。以2014—2019年沪深两市上市公司为研究样本，结果发现：企业家冒险倾向对创新投入和创新绩效具有正向影响。创新投入能够促进创新绩效提升，而且在企业家冒险倾向和创新绩效间发挥部分中介作用。区域冒险精神对企业家冒险倾向和创新绩效关系的调节作用呈倒U型。结论揭示了企业内外部非正式制度的重要性，并进一步拓展了企业创新前置影响因素研究。     

Unfair inequality,governance and individual beliefs

Unfair inequality arises when incentives are not fairly tied to effort or investment across the socio-economic spectrum. The actual limitations on economic activity from this failure may depend on whether people believe the system is unfair, and how well governing institutions safeguard fair-play. In this paper, I study whether unfair wealth inequality is correlated with beliefs about fairness, and whether good governance can be a substitute in belief formations for decreases in unfair inequality. I find a that people in countries with recent increases in unfair wealth inequality are less likely to believe that inequality is due to fair processes. This relationship holds when“fair” determinants of inequality include effort, as well as moral and meritocratic components. The relationship is strongest in countries with poor quality governance. In countries with high quality governance, people appear to be more tolerant of unfair inequality, as it is only weakly reflected in their beliefs about process fairness.     

Migration and intention to return: entrepreneurial intentions of the diaspora in post-conflict economies

This article examines the intentions of the diaspora to return to their homeland and engage in entrepreneurial activity. We focus on post-conflict economies where the development potential of return migration is significant. Our article demonstrates that the entrepreneurial intentions of returning diaspora are affected by their level of trust and perceptions of risk in institutions at home. Through a survey of diaspora returning to Kosovo, the paper finds that business experience has a negative relationship on probability to return, but it has a positive relationship on entrepreneurial intentions. However, those with professional and qualified jobs are more likely to have intentions to return, but less likely to have entrepreneurial intentions. The paper contributes to academic research on the central importance of institutions to post-conflict development, demonstrating that by enhancing the institutional environment investment can be attracted home.     

Credit contracting and bidding under wealth constraints

Summary. We model credit contracting and bidding in a first-price sealed-bid auction when bidder valuation and wealth are private information. An efficient separating equilibrium exists only if the wealth levels of both bidder types are sufficiently different. If not, high-valuation bidders signal by borrowing more and using less of their wealth – this is inefficient as wealth is a cheaper source of funds. An increase in the amount of borrowing required to signal does not necessarily decrease seller expected revenue. In contrast to separating equilibria, high-valuation bidders adopt pure strategy bids in pooling equilibria. Conditions are identified under which the lower bound on winning bids is higher in pooling than separating equilibria. Received: January 22, 2001; revised version: August 28, 2001     

Education for the masses? The interaction between wealth,educational and political inequalities

This paper presents a simple model of distribution dynamics, in which the distributions of wealth, education and political power are circularly endogenous. Different levels of education translate into different income and wealth levels. Political power may (or may not) vary with wealth, and in turn affects decisions on the level of public expenditure on education. Since the market for education credit is imperfect, some people might need to rely on public schooling, the quality of which depends on those expenditure levels. As a result, educational opportunities differ along the wealth distribution. The dynamic system displays multiple equilibria, some of which are characterized by a vicious circle of interaction between educational, wealth and political inequalities. These particular equilibria, which are more unequal, are also shown to be inefficient in terms of aggregate output levels. Switching equilibria may be achieved through redistribution of political power.
JEL classification: D31, D63.     

When should firms choose a risky new technology? An oligopolistic analysis

How to choose technology type in a competitive environment is an important and challenging problem, which has received little attention from scholars. To fill this gap, this paper builds a game-theoretic model to examine whether a firm should choose to adopt a risky new technology or to adopt a safe new technology to reduce its marginal cost. I find that the result that each firm should always choose the risky technology in a duopoly may be invalid when more firms enter the market. In this scenario, some firms should adopt the safe technology for relatively high product substitutability because the advantage of employing the risky technology is threatened by the business stealing externality, finally forming heterogeneous equilibria in which both types of technologies are present. Furthermore, I show that the heterogeneous technology choice equilibria are more likely to arise when increasing number of firms enter the market, and that in these equilibria more firms always choose the risky technology than the safe technology. This study conveys relevant economic insights for competitive firms confronted with a dilemma between taking risks in pursuit of greater technology rewards and taking no risks for conservative technology returns.     

产业转型升级中的民企承继问题--以“富二代”接班议题为例

从经济社会学视角审视产业转型升级研究，其间涉及到社会分层的合理化、企业承继，以及产业组织化等议题。本文以民营企业“富二代”接班为例，借助于诺斯的“共享心智模型’’理念，探求了民营企业财富与运营控制权的代际传承与产业转型升级之间的关联。本文结论的是，企业承继涉及到的不只是产业特征和经营特质等物质财富问题，更关联到心灵财富问题，即基于“国家（政府）一市场一社会”逻辑框架上“心智”的转型升级。     

产业转型升级中的民企承继问题——以“富二代”接班议题为例

从经济社会学视角审视产业转型升级研究,其间涉及到社会分层的合理化、企业承继,以及产业组织化等议题。本文以民营企业"富二代"接班为例,借助于诺斯的"共享心智模型"理念,探求了民营企业财富与运营控制权的代际传承与产业转型升级之间的关联。本文结论的是,企业承继涉及到的不只是产业特征和经营特质等物质财富问题,更关联到心灵财富问题,即基于"国家(政府)-市场-社会"逻辑框架上"心智"的转型升级。     

Entrepreneurship,Financiership, and Selection*

We develop an equilibrium model of the market for entrepreneurial finance, in which all agents have some personal wealth and a project whose quality is their private information. All agents choose whether to invest either as entrepreneurs or financiers, or to invest in storage technology. We find that a binding economy‐level wealth constraint, which renders credit scarce, can create advantageous selection, where productive agents become entrepreneurs and unproductive agents become their financiers. If funding is easier to obtain, entrepreneurship also attracts unproductive agents. In our model, individual wealth and entrepreneurship are positively (negatively) correlated if financial market participation is complete (incomplete).     

Enterprise, Inequality and Economic Development

We characterize an equilibrium development process driven by the interactionof the distribution of wealth with credit constraints and the distributionof entrepreneurial skills. When efficient entrepreneurs are relativelyabundant, a "traditional" development process emerges in whichthe evolution of macroeconomic variables accord with empirical regularitiesand income inequality traces out a Kuznets curve. If, instead, efficiententrepreneurs are relatively scarce, the model generates long-run"distributional cycles" driven by the endogenous interactionbetween credit constraints, entrepreneurial efficiency and equilibriumwages.     

Implementing Arrow-Debreu equilibria by trading infinitely-lived securities

Summary. We show that Arrow-Debreu equilibria with countably additive prices in infinite-time economy under uncertainty can be implemented by trading infinitely-lived securities in complete sequential markets under two different portfolio feasibility constraints: wealth constraint, and essentially bounded portfolios. Sequential equilibria with no price bubbles implement Arrow-Debreu equilibria, while those with price bubbles implement Arrow-Debreu equilibria with transfers. Transfers are equal to price bubbles on initial portfolio holdings. Price bubbles arise in sequential equilibrium under the wealth constraint if some securities are in zero supply or negative prices are permitted, but cannot arise with essentially bounded portfolios.Received: 19 November 2003, Revised: 24 February 2004, JEL Classification Numbers: D50, G12, E44.Correspondence to: Jan WernerWe acknowledge helpful discussions with Roko Aliprantis, Subir Chattopaydhyay, Steve LeRoy, Manuel Santos, and seminar participants at Brown University, University of Pennsylvania, NBER Workshop in General Equilibrium Theory, SITE 2000, the 2000 World Congress of the Econometric Society, and Federal Reserve Bank of Kansas City. The views expressed herein are those of the authors and do not necessarily reflect the views of Federal Reserve Bank of Kansas City or the Federal Reserve System.     

Buying a Home with a Resale Value: Location,Location, Location*

We develop a dynamic multiregion model, where a household's choice of housing location depends on its current wealth and its current type, and involves both consumption and investment considerations. The relative strength of the consumption motive and the investment motive determines the equilibrium pattern of residential sorting. A strong investment (consumption) motive implies sorting according to household type (wealth). The model predicts that large house‐price fluctuations are associated with a low degree of sorting by type. This prediction is consistent with evidence from US metropolitan areas when income, education, and age are used as proxies for household type.     

Collateral,labour monitoring and banking accelerator

This paper derives the determination of external finance premium (EFP ) in the context of banking sector profit maximisation behaviour. EFP/credit spread stems from the managerial cost, associated with the intermediation process, of factor payments to collateral and labour services. The stake of entrepreneurs is relevant to determine the EFP on two grounds: (a) the ratio of entrepreneurial net wealth to collateral value influences the total managerial cost; and (b) entrepreneurs' net worth (fraction of total collateral) helps mitigate the EFP from extracting rebate from collateral service. Based on these, we can derive an observationally similar relationship between EFP and entrepreneurial leverage, as in previous studies. This provides a rationale for us to understand the financial friction from a novel perspective. Besides the leverage ratio, the EFP is shown to be determined also by the resource cost of financial intermediation, for which the model generates a mechanism that contains broader ingredients in determining the behaviour of EFP .     

Evolution and Mixed Strategies

Selten (1980, J. Theoret. Biol., 84, 93–101) showed that no mixed equilibria are evolutionarily stable when players can condition their strategies on their roles in a game. Alternatively, Harsanyi's (1973, Int. J. Game Theory, 2, 1–23) purification argument implies that all mixed equilibria are approximations of strict, and hence evolutionarily stable, equilibria of games with slightly perturbed payoffs. This paper reconciles these results: Approximations of mixed equilibria have high invasion barriers, and hence are likely to persist, when payoff perturbations are relatively important and role identification is relatively noisy. When payoff perturbations are unimportant and role identification is precise, approximations of mixed equilibria will have small invasion barriers and are unlikely to persist. Journal of Economic Literature Classification Numbers: C70, C78.