Working Papers

May 2017, No. 17-07

An Estimated Structural Model of Entrepreneurial Behavior

John Bailey Jones and Sangeeta Pratap

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. The nonpecuniary benefits to farming are large and keep small, low-productivity farms in business. Although farmers are risk averse, eliminating uninsured risk has only modest effects on capital and output.



Our Research Focus: Labor Markets

DOI: https://doi.org/10.21144/wp17-07

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