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Massive earthquakes, risk aversion, and entrepreneurship

Author

Listed:
  • Guido Blasio

    (Bank of Italy, Research Department)

  • Maria Paola

    (University of Calabria
    Institute for the Study of Labor (IZA))

  • Samuele Poy

    (Catholic University of Milan
    Economic and Social Research Institute of Piedmont (IRES Piemonte)
    University of Piemonte Orientale)

  • Vincenzo Scoppa

    (University of Calabria
    Institute for the Study of Labor (IZA))

Abstract

This paper investigates the impact of risk attitudes on the decision to become an entrepreneur. In contrast to previous research, we handle endogeneity issues relying on an instrumental variables strategy considering as a source of exogenous variation in risk aversion the early exposure to a massive earthquake. Using several waves of the Bank of Italy Survey of Household Income and Wealth (SHIW), we find that individuals experiencing an earthquake are significantly more risk averse. Second-stage estimates show that risk aversion has a significant negative impact on the probability of becoming an entrepreneur. A large number of robustness checks confirm our main findings.

Suggested Citation

  • Guido Blasio & Maria Paola & Samuele Poy & Vincenzo Scoppa, 2021. "Massive earthquakes, risk aversion, and entrepreneurship," Small Business Economics, Springer, vol. 57(1), pages 295-322, June.
    • Handle: RePEc:kap:sbusec:v:57:y:2021:i:1:d:10.1007_s11187-020-00327-x
    DOI: 10.1007/s11187-020-00327-x
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    More about this item

    Keywords

    Entrepreneurship; Risk attitudes; Natural disasters; Instrumental variables;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation

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