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

Author

Listed:
  • Michelle Dell’Era
  • Luca David Opromolla
  • Luís Santos-Pinto
Abstract
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.

Suggested Citation

  • Michelle Dell’Era & Luca David Opromolla & Luís Santos-Pinto, 2018. "A General Equilibrium Theory of Occupational Choice under Optimistic Beliefs about Entrepreneurial Ability," Working Papers REM 2018/50, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    • Handle: RePEc:ise:remwps:wp0502018
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    References listed on IDEAS

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    More about this item

    Keywords

    General Equilibrium; Entrepreneurship; Optimism;
    All these keywords.

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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