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American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

An Estimated Structural Model of Entrepreneurial Behavior

  • John Bailey Jones
  • Sangeeta Pratap
American Economic Review
vol. 110, no. 9, September 2020
(pp. 2859–98)
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Abstract

Using a rich panel of owner-operated New York dairy farms, we provide new evidence on entrepreneurial behavior. We formulate a dynamic model of farms facing uninsured risks and financial constraints. Farmers derive nonpecuniary benefits from operating their businesses. We estimate the model via simulated minimum distance, matching both production and financial data. We find that financial factors and nonpecuniary benefits are of first-order importance. Collateral constraints and liquidity restrictions inhibit borrowing and the accumulation of capital, especially among high-productivity firms seeking to expand. The nonpecuniary benefits to farming are large and keep small, low-productivity farms in business. Although farmers are risk averse, eliminating uninsured production risk has only modest effects on capital and output.

Citation

Jones, John Bailey, and Sangeeta Pratap. 2020. "An Estimated Structural Model of Entrepreneurial Behavior." American Economic Review, 110 (9): 2859–98. DOI: 10.1257/aer.20170370

Additional Materials

JEL Classification

  • C51 Model Construction and Estimation
  • D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
  • G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
  • Q12 Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
  • Q14 Agricultural Finance