Occupational choice and liquidity constraints |
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Institution: | 1. Department of Economics, University of Georgia, Athens, GA 30602, USA;2. Department of Economics, Georgia State University, Atlanta, GA 30303, USA;1. Henley Business School, University of Reading, Reading, RG6 6UD, UK;2. Birmingham University Business School, University of Birmingham, Edgbaston, Birmingham, BT15 2TT, UK |
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Abstract: | Using U.S. data, Evans and Jovanovic find a strong effect of the level of assets on the probability of being self-employed. They interpret this result as evidence of liquidity constraints. In this paper, we follow up this line of research: first, by replicating Evans and Jovanovic's methodology on French data to show that the empirical evidence is similar. Second, we embed their static model into a dynamic framework with uncertainty. The main theoretical prediction that can be drawn is that if the liquidity constraint is strong enough a future increase in the “entrepreneurial ability” of an agent, although raising expected future incomes, may induce her to lower her current consumption and raise her savings. |
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