Working Paper: CEPR ID: DP13225
Authors: Luca David Opromolla; Michele Dellera; Luis Santospinto
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.
Keywords: general equilibrium; entrepreneurship; optimism
JEL Codes: D50; H21; J24; L26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Optimism (D84) | Misallocation of Talent (D29) |
| Optimism (D84) | Input Prices (L11) |
| Optimism (D84) | Number of Entrepreneurs (L26) |
| Optimism (D84) | Welfare of Entrepreneurs (L26) |