Personal bankruptcy law and self-employment activity

  • I Made Krisn Yudhana Wisnu Gupta I Made Krisn Yudhana Wisnu Gupta

Microeconomic theory suggests that risk aversion may result in people to take less optimal decision in a situation associated with risk. If people believe that being self-employed is riskier than beingwage-employed, then at some point, risk averse wage-employed won’t become self-employed even if it is optimal to do so. In this case, introducing some sort of insurance scheme may increasepeople’s participation in self-employment activity. I use the family level data from Panel Study of Income Dynamics, and I exploit provisions in the United States’ bankruptcy code, specifically thehomestead exemption level, as the insurance institution. I find that the increase of exemption level by ten percentage point increases the probability of owning a business by 1.5 percentage points,after the year 2005. I also find that the effect is explained by the incorporated business.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.


Mission en strategy           •           Network           •           Organisation           •          Magazine
Board Brief            •            Actionplan 2023-2027           •           Researchagenda


Our partners

B20160708_universiteit utrecht
B20210909_SPMS_logo download greyscale smaller
View all partners