This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. Journals
  3. American Economic Review
  4. December 2009
  5. Risk Taking by Entrepreneurs

American Economic Review

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

Risk Taking by Entrepreneurs

  • Galina Vereshchagina
  • Hugo A. Hopenhayn
American Economic Review
vol. 99, no. 5, December 2009
(pp. 1808–30)
Download Full Text PDF

Abstract

Entrepreneurs bear substantial risk, but empirical evidence shows no sign of a positive premium. This paper develops a theory of endogenous entrepreneurial risk taking that explains why self-financed entrepreneurs may find it optimal to invest in risky projects offering no risk premium. Consistently with empirical evidence, the model predicts that poorer entrepreneurs are more likely to undertake risky projects. It also finds that incentives for risk taking are stronger when agents are impatient. (JEL G31, G32, L25, L26)

Citation

Vereshchagina, Galina, and Hugo A. Hopenhayn. 2009. "Risk Taking by Entrepreneurs." American Economic Review, 99 (5): 1808–30. DOI: 10.1257/aer.99.5.1808

Additional Materials

JEL Classification

  • G31 Capital Budgeting; Fixed Investment and Inventory Studies
  • G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
  • L25 Firm Performance: Size, Diversification, and Scope
  • L26 Entrepreneurship