Work

Distinguishing Limited Liability from Moral Hazard in a Model of Entrepreneurship

Year: 2006

Type: article

Abstract: We present and estimate a model in which the choice between entrepreneurship and wage work may be influenced by financial market imperfections. The model allows for limited liability, moral hazard, and a combination of both constraints. The paper uses structural techniques to estimate the model and identify the source of financial market imperfections using data from rural and semiurban households in Thailand. Structural, nonparametric, and reduced‐form estimates provide independent evidence that the dominant source of credit market imperfections is moral hazard. We reject the hypothesis that limited liability alone can explain the data.

Source: Journal of Political Economy

DOI: 10.1086/498917

Authors: Anna L. Paulson, Robert M. Townsend, Alexander Karaivanov

Institutions: Federal Reserve Bank of Chicago, University of Chicago, Simon Fraser University

Language: English

Topic: Microfinance and Financial Inclusion

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDGs: Decent work and economic growth, No poverty

Open Access status: green

OpenAlex ID: W2160043972

FWCI: 34

Cites: 25

Cited by: 178

Related to: 10