A General Equilibrium Theory of Occupational Choice under Optimistic Beliefs about Entrepreneurial Ability

Arbeitspapier

This paper studies the impact of optimism on occupational choice using a general equilibrium framework. The model shows that optimism has four main qualitative effects: it leads to a misallocation of talent, drives up input prices, raises the number of entrepreneurs, and makes entrepreneurs worse off. We calibrate the model to match U.S. manufacturing data. This allows us to make quantitative predictions regarding the impact of optimism on occupational choice, input prices, the returns to entrepreneurship, and output. The calibration shows that optimism can explain the empirical puzzle of the low mean returns to entrepreneurship compared to average wages.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 7300

Classification and Topics

• Classification: Wirtschaft ; General Equilibrium and Disequilibrium: General ; Taxation and Subsidies: Efficiency; Optimal Taxation ; Human Capital; Skills; Occupational Choice; Labor Productivity ; Entrepreneurship
• Subject: general equilibrium ; entrepreneurship ; optimism

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Dell'Era, Michele ; Opromolla, Luca David ; Santos-Pinto, Luís
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/185498
• Last update: 10.03.2025, 11:45 AM CET