Date of Award

5-9-2024

Author's School

Graduate School of Arts and Sciences

Author's Department

Economics

Degree Name

Doctor of Philosophy (PhD)

Degree Type

Dissertation

Abstract

This dissertation consists of three chapters that contribute to the fields of macroeconomics, economic development, and entrepreneurship. In the first chapter, "Entrepreneurship Selection and Performance in the U.S. and Across Countries: The Role of Human Capital," I seek to establish a set of stylized facts related to entrepreneurship and human capital, the latter being proxied by years of formal education. Analyzing individual-level survey data from nearly 100 countries unveils new empirical facts: there is a strong positive link between the mean-adjusted rate of entrepreneurship for higher educated individuals and output per worker or estimated total factor productivity (TFP). Further focus on the U.S. economy, again at the micro level, reveals a non-linear and time-varying relationship between the rate of entrepreneurship and educational attainment exhibiting an asymmetric U-shape with its left branch declining over time. At the same time, higher education is strongly positively associated---not U-shaped---with numerous measures of business outcomes among active firm owners/managers. Conditioning on a rich set of socioeconomic and demographic observables, the robustness of these results is confirmed under proper repeated imputation inference. The second chapter, "Entrepreneurship, Human Capital, and the Allocation of Talent," raises new points of inquiry and attempts to enrich the discussion in the relevant literature. Is the allocation of human capital between entrepreneurs and workers a key determinant of aggregate productivity and income? How pervasive are its implications for macro-development? To organize the discourse on addressing these questions, I propose a versatile heterogeneous-agent model with occupational and educational choices, which is able to rationalize the empirical findings of Chapter 1 while remaining broadly consistent with aggregate and survey data. Under the hypothesis that entrepreneurial human capital may enhance productive capacities via costly technology adoption, the entrepreneurship-education nexus has first-order aggregate and distributional consequences. As new generations build skills through schooling and form expectations about their future labor market prospects, this mechanism also affects the accumulation of human capital economy-wide. Calibrating the model to the U.S. economy is successful in replicating a wide spectrum of targeted and non-targeted moments, thereby capturing salient features of micro and macro data. Quantitative explorations suggest sizeable and persistent losses in output and total factor productivity (TFP) across nations due to inadequate complementarity between idiosyncratic talent and human capital. This novel channel can often account for a major share of cross-country income differences vis-à-vis the U.S., as it drastically affects both factor accumulation and endogenous TFP formation. In the third chapter, "Sometimes Less is More: Growth, Risk Aversion, and the Suboptimality of Entrepreneurial Insurance" (joint work with Neville N. Jiang, Ping Wang, and Haibin Wu), we aim to address two major research questions. Is promoting entrepreneurship always conducive to long-run economic growth? To what extent should policymakers strive to insure entrepreneurial risk away? We study these questions by developing a tractable endogenous growth model with occupational choice, where individuals are heterogeneous in their risk attitude and entrepreneurial ability. Less risk-averse and sufficiently productive agents become entrepreneurs and contribute to growth by expanding product variety. More risk-averse and less productive agents become workers and foster growth by enhancing human and physical capital formation. As occupational choice induces an inverse association between risk tolerance and entrepreneurial talent at the margin, encouraging firm creation may hinder aggregate productivity. The interplay of these forces leads to a non-monotone relationship between the rates of entrepreneurship and balanced growth. A competitive equilibrium entails suboptimal allocations with either too few or too many active entrepreneurs, even in the absence of distortions or financial frictions. Insuring some entrepreneurial risk away is almost always growth-enhancing, but it is almost surely never optimal to provide full insurance. Calibrating the model to U.S. data reveals substantial output-side misallocation, with most of income growth and aggregate TFP losses stemming from the intensive margin due to the presence of risk aversion.

Language

English (en)

Chair and Committee

Costas Azariadis

Committee Members

Ping Wang

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