Entrepreneurial Talent, Occupational Choice, and Trickle Up Policies

In this paper they the study market inefficiencies and policy remedies when agents choose their occupations, and entrepreneurial talent is subject to private information. Un-talented entrepreneurs depress the returns to entrepreneurship because of adverse selection. The severity of this problem depends on the outside options of untalented entrepreneurs, i.e., working for wages. This links credit, product and labour markets. A rise in wages reduces the adverse selection problem. These multi-market interactions amplify productivity shocks and may generate multiple equilibria. [BREAD Working Paper No. 102] URL: [http://ipl.econ.duke.edu/bread/papers/working/102.pdf]