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Department of Economics, Stockholm University Research Papers in Economics, Department of Economics, Stockholm University

No 1999:18:
The Effects of Risk Aversion and Age on Investments in New Firms

Tomas Forsfält

Abstract: How does the age of risk-averse individuals affect investments in private projects? This question is analyzed under the assumption that such individuals have to invest a large fraction of their personal wealth in order to establish a new firm. Thresholds conditional on age that trigger a switch from one asset to another are derived in a continuous-time portfolio choice model with zero-or -one choices. As the investor gets older - and depending on random events - not only wealth, but also the thresholds, might increase. Thus, there are two counteracting effects on the likelihood of becoming an entrepreneur.

Keywords: entrepreneurs; portfolio choice; either-or; horizon; risk aversion; (follow links to similar papers)

JEL-Codes: D81; G11; (follow links to similar papers)

25 pages, November 1, 1999

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