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Small Business Economics

, Volume 24, Issue 1, pp 63–78 | Cite as

The Winner’s Curse of Human Capital

  • Thomas ÅstbroEmail author
  • Irwin Bernhardt
Article

Abstract

We extend a model developed by Evans and Jovanovic (1989) to explain when start-ups are credit constrained. We show that the magnitude of the credit constraint is conditioned by the relative productivity of human capital in both wage work and self-employment. The effect of predicted household income on start-up capital is used to indicate the existence of financial constraint. Empirical analysis reveals that entrepreneurs with high human capital have both greater financial wealth and greater levels of start-up capital pointing to the endogenous nature of credit constraints. High human capital relaxes financial constraints, apparently due to greater productivity of human capital in wage work than in self-employment. Those who are the least likely to be credit constrained in self-employment are those that are least likely to switch into self-employment,and vice versa.

Keywords

Income Human Capital Household Income Empirical Analysis Great Level 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer Science + Business Media, Inc. 2005

Authors and Affiliations

  1. 1.Rotman School of ManagementUniversity of Toronto TorontoOntarioCanada
  2. 2.Department of Management SciencesUniversity of Waterloo WaterlooOntarioCanada

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