An Estimated Structural Model of Entrepreneurial Behavior
John Bailey Jones, Sangeeta Pratap
American Economic Review · 2020 · Volume 110 · Issue 9
Abstract
Using a rich panel of owner-operated New York dairy farms, we provide new evidence on entrepreneurial behavior. We formulate a dynamic model of farms facing uninsured risks and financial constraints. Farmers derive nonpecuniary benefits from operating their businesses. We estimate the model via simulated minimum distance, matching both production and financial data. We find that financial factors and nonpecuniary benefits are of first-order importance. Collateral constraints and liquidity restrictions inhibit borrowing and the accumulation of capital, especially among high-productivity firms seeking to expand. The nonpecuniary benefits to farming are large and keep small, low-productivity farms in business. Although farmers are risk averse, eliminating uninsured production risk has only modest effects on capital and output.
Keywords
Model Construction and Estimation, Production, Cost, Capital, Total Factor, and Multifactor Productivity, Capacity, Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill, Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets, Agricultural Finance
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