The Housing Boom and Selection into Entrepreneurship

João Alfredo Galindo da Fonseca and Pierluca Pannella
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João Alfredo Galindo da Fonseca: Université de Montréal, CIREQ
Pierluca Pannella: Sao Paulo School of Economics - FGV

No 03-2019, Cahiers de recherche from Centre interuniversitaire de recherche en économie quantitative, CIREQ

Abstract: We provide evidence that the boom in housing prices occurred in the early 2000 distorted the selection of individuals that opened a business. A simple model of collateral financing predicts an increase in entry into entrepreneurship for house-owners and, particularly, for individuals with lower entrepreneurial ability and higher probability of failure. We support the predictions of the model using panel data at the individual level including restricted access information on the MSA of residence of an individual. We combine this data with geographic information about house prices at the MSA level. We confirm that the increase in house prices had a larger impact on the decision of becoming an entrepreneur for lower ability house-owners.

Date: 2019-05
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