Risk aversion and entrepreneurship under uncertainty: Further results

Abstract

The extant literature has shown that (i) the positive relation between assets and the rate of business startups and (ii) the increase in the relative return to risky entrepreneurship for the marginal individual when his assets increase are both driven by risk preferences that exhibit decreasing absolute risk aversion (DARA). In this paper, we contribute to the theory of entrepreneurship under uncertainty by proving that DARA is not only sufficient but also necessary for these two results. DARA as such plays an essential role for the understanding of the occupational choice between risky entrepreneurship (self-employment) and secure employment when uncertainty prevails.