Occupational choice and the quality of entrepreneurs

This paper focuses on the quality of entrepreneurs when individuals, who differ in terms of entrepreneurial ability and wealth, choose between entrepreneurship and wage-earning. A loan is required to become an entrepreneur. Four wealth classes form endogenously. Banks' inability to identify the ability of individuals leads them to o¤er pooling contracts to the poor and the lower-middle classes. Regardless of ability, all poor class individuals become workers and all lower-middle class individuals become entrepreneurs. Banks are able to offer separating contracts to the upper-middle and the rich classes. High-ability individuals in these wealth classes become entrepreneurs and their low-ability counterparts become workers. Equilibrium contracts may entail cross-subsidies within or between occupations. In some economies, a small success tax on entrepreneurs used to subsidize workers can in- crease the average quality of entrepreneurs and welfare by changing the thresholds of the wealth classes. In some others a reverse policy is required. Since the aggregate level of investment is fixed, the reason for these policies is not under- or overinvestment by entrepreneurs, as it often is in previous literature

Banks versus venture capital when the venture capitalist values private benefits of control

If control of their firms allows entrepreneurs to derive private benefits, it also allows other controlling parties. Private benefits are especially relevant for venture capitalists, who typically get considerable control in their portfolio firms, but not for banks, which are passive loan providers. We incorporate this difference between banks and venture capital and analyze entrepreneurs' financing strategy between the two. We find that, in all strict Nash Equilibria, entrepreneurs who value private benefits more choose banks while the rest choose venture capital. Thus, bank-financed entrepreneurs allocate more resources to tasks that yield private benefits while VC-backed entrepreneurs have higher profitability

The stability of downtown parking and traffic congestion

Consider a transport facility in steady state that is operating at maximum throughput. How does it respond to a once-and-for-all increase in demand? The trip price must increase to ration the increased demand, but how? These questions have been the subject of a debate in transport economic theory dating back to Walters’ classic paper (1961). The current wisdom is that the facility continues to operate at full capacity, with travel at reduced velocity and/or increased queuing serving to increase the trip price. This paper analyzes the transient dynamics and stability of steady states for a spatially uniform road network with on-street parking, and finds in this context that the increase in demand may cause operation at reduced throughput

The Stability of downtown parking and traffic congestion

In classical traffic flow theory, there are two velocities associated with a given level of traffic flow. Following Vickrey, economists have termed travel at the higher speed congested travel and at the lower speed hypercongested travel. Since the publication of Walters' classic paper (1961, Econometrica 29, 676-699), there has been an on-going debate concerning whether a steady-state hypercongested equilibrium can be stable. For a particular structural model of downtown traffic flow and parking, this paper demonstrates that a steady-state hypercongested equilibrium can be stable. Some other sensible models of traffic congestion conclude that steady-state hypercongested travel cannot be stable, and that queues develop to ration the demand in steady states. Thus, we interpret our result to imply that, when steady-state demand is so high that it cannot be rationed through congested travel, the trip price increase necessary to ration the demand may be generated either through the formation of steady-state queues or through hypercongested travel, and that which mechanism occurs depends on details of the traffic system

The masquerade ball of the CEOs and the mask of excessive risk

We analyze the effects of CEOs' layoff risk on their risk choice while overseeing a firm. A CEO, whose managerial ability is unknown, is fired if her expected ability is below average. Her risk choice changes the informativeness of output and market's belief about her ability. She can decrease her layoff risk by taking excessive risk and trade off current compensation for layoff risk. The firm may voluntarily or involuntarily allow excessive risk taking even under optimal linear compensation contracts. Above-average CEOs always keep their jobs, but among below-average CEOs, a higher-ability one is more likely to be fired

The Stability of Downtown Parking and Traffic Congestion

In classical traffic flow theory, there are two velocities associated with a given level of traffic flow. Following Vickrey, economists have termed travel at the higher speed congested travel and at the lower speed hypercongested travel. Since the publication of Walters' classic paper (1961, Econometrica 29, 676-699), there has been an on-going debate concerning whether a steady-state hypercongested equilibrium can be stable. For a particular structural model of downtown traffic flow and parking, this paper demonstrates that a steady-state hypercongested equilibrium can be stable. Some other sensible models of traffic congestion conclude that steady-state hypercongested travel cannot be stable, and that queues develop to ration the demand in steady states. Thus, we interpret our result to imply that, when steady-state demand is so high that it cannot be rationed through congested travel, the trip price increase necessary to ration the demand may be generated either through the formation of steady-state queues or through hypercongested travel, and that which mechanism occurs depends on details of the traffic system.traffic congestion, cruising for parking, on-street parking, hypercongestion

THE STABILITY OF DOWNTOWN PARKING AND TRAFFIC CONGESTION

In classical traffic flow theory, there are two velocities associated with a given level of traffic flow. Following Vickrey, economists have termed travel at the higher speed congested travel and at the lower speed hypercongested travel. Since the publication of Waltersí classic paper (1961, Econometrica 29, 676- 699), there has been an on-going debate concerning whether a steady-state hypercongested equilibrium can be stable. For a particular structural model of downtown traffic flow and parking, this paper demonstrates that a steady- state hypercongested equilibrium can be stable. Some other sensible models of traffic congestion conclude that steady-state hypercongested travel cannot be stable, and that queues develop to ration the demand in steady states. Thus, we interpret our result to imply that, when steady-state demand is so high that it cannot be rationed through congested travel, the trip price increase necessary to ration the demand may be generated either through the forma- tion of steady-state queues or through hypercongested travel, and that which mechanism occurs depends on details of the traffic system.traffic congestion, cruising for parking, on-street parking, hyper-congestion

Free Parking for All in Shopping Malls

We show why a shopping mall prefers to provide parking for free and embed the parking costs in the prices of the goods. This holds if the mall has monopoly power or prices competitively; if there is parking validation or a trade-off between shopping and parking spaces. It is also the second-best social optimum. Generally, the equilibrium lot size is too small, yielding a rationale for minimum parking requirements. In urban malls, parking fees may be positive because individuals can use the lot without intending to shop, and lots may become too large because of the trade-off between shopping and parking spaces.land use; lot size; parking fee; parking requirements; shopping mall

The Old-Boy Network and the Quality of Entrepreneurs

We study a model of network formation and start-up financing with endogenous entrepreneurial type distribution. A hub firm admits members to its network based on signals about entrepreneurs’ types. Network membership is observable, which allows lenders to offer different interest rates to network and stand-alone entrepreneurs. We show that a network outcome can display a smaller number of high-type entrepreneurs even though the network is neither nepotistic nor informationally disadvantaged. While a welfare-improving network can emerge as a technically stable or unstable equilibrium, one that decreases welfare is always formed by a technically unstable equilibrium. However, the adverse welfare effects of a network and its corresponding type configuration may persist because ex-post high type entrepreneurs prefer to stay high type whereas those who wish to become high-type may need some time to react.entrepreneur, network, start-up financing

Banks versus venture capital when the venture capitalist values private benefits of control

If control of their firms allows entrepreneurs to derive private benefits, it also allows other controlling parties. Private benefits are especially relevant for venture capitalists, who typically get considerable control in their portfolio firms, but not for banks, which are passive loan providers. We incorporate this difference between banks and venture capital and analyze entrepreneurs' financing strategy between the two. We find that, in all strict Nash Equilibria, entrepreneurs who value private benefits more choose banks while the rest choose venture capital. Thus, bank-financed entrepreneurs allocate more resources to tasks that yield private benefits while VC-backed entrepreneurs have higher profitability.bank, control, entrepreneurship, private benefit, venture capital