Abstract
This paper revisits the empirical relationship between the probability of transition to entrepreneurship and wealth. Given that wealth is correlated with both education and age, these observable characteristics cannot be treated as independent covariates in the estimation. Thus, I document the differences in the transition probability profile across age and education groups. The main result of this paper is that the estimated probability of transition to entrepreneurship is hump-shaped in wealth across cohorts defined by age and education. Therefore, the aggregate profile estimated by Hurst and Lusardi (J Polit Econ 112(2):319–347, 2004) is not representative at the micro level. In addition, this paper provides facts that evidence important differences between entrepreneurs and workers, as well as among entrepreneurs, across education and age.
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I want to thank Mark Huggett and Jonathan Heathcote for their guidance and support. I extend my gratitude to Phil Cross for his guidance on the econometric estimations; as well as Alejandro Badel, Francisco Buera, Sussan Collins, Erik Hurst, Annamaria Lusardi, Anne Villamil, Ximena Peña-Parga, two anonymous referees and the participants at the Midwest Macroeconomic Meetings 2006 and the WEAI 2006 for useful comments and suggestions on the current as well as the previous version of the paper that circulated as “Entrepreneurship Types, Transition and Returns in the US”.
The views expressed in this paper are those of the author and do not necessarily represent those of the IFC or IFC management.
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Mondragón-Vélez, C. The probability of transition to entrepreneurship revisited: wealth, education and age. Ann Finance 5, 421–441 (2009). https://doi.org/10.1007/s10436-008-0117-3
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DOI: https://doi.org/10.1007/s10436-008-0117-3