Occupational choice and entrepreneurship: From necessity to opportunity

Abstract

AbstractWe present a simple agency model with a monopolist lender and an individual facing an occupational choice between entering the labor market as a wage worker and starting a self‐managed business. We show that, when the reservation utility is relatively low, the lender may not want to offer any credit contract, so the individual is forced to become a wage worker out of necessity, whereas when the reservation utility is high, the bank may find it profitable to finance the investment project, and the individual can choose to become an entrepreneur out of opportunity.