Replication data for: The Burden of the Nondiversifiable Risk of Entrepreneurship

Resource Type
  • Hall, Robert E.
  • Woodward, Susan E.
Publication Date
  • Abstract

    Entrepreneurship is risky. We study the risk facing a well-documented and important class of entrepreneurs, those backed by venture capital. Using a dynamic program, we calculate the certainty-equivalent of the difference between the cash rewards that entrepreneurs actually received over the past 20 years and the cash that entrepreneurs would have received from a risk-free salaried job. The payoff to a venture-backed entrepreneur comprises a below-market salary and a share of the equity value of the company when it goes public or is acquired. We find that the typical venture-backed entrepreneur received an average of $5.8 million in exit cash. Almost three-quarters of entrepreneurs receive nothing at exit and a few receive over a billion dollars. Because of the extreme dispersion of payoffs, an entrepreneur with a coefficient of relative risk aversion of two places a certainty equivalent value only slightly greater than zero on the distribution of outcomes she faces at the time of her company's launch. (JEL G24, G32, L26, M13)
  • Is supplement to
    DOI: 10.1257/aer.100.3.1163 (Text)
  • Hall, Robert E, and Susan E Woodward. “The Burden of the Nondiversifiable Risk of Entrepreneurship.” American Economic Review 100, no. 3 (June 2010): 1163–94.
    • ID: 10.1257/aer.100.3.1163 (DOI)

Update Metadata: 2020-05-18 | Issue Number: 2 | Registration Date: 2019-10-11