Skip to content

Journal Article

Mortgage debt and entrepreneurship

Authors

Publication date

Jan 2018

Summary

We study the link between mortgage debt and entrepreneurship using a model of occupational choice and housing tenure in a setting where loans are recourse—like in the UK and several US states. Our model shows that as long as the mortgage interest rate exceeds the risk-free rate: (i) mortgage debt diminishes the likelihood of entrepreneurship by amplifying risk aversion; and (ii) the negative relation between mortgage debt and entrepreneurship increases with income volatility. Our model also shows that the link between housing equity and entrepreneurship is ambiguously signed because of competing portfolio and wealth effects. We use the British Household Panel Survey to test and confirm the model predictions, and deal with unobservable heterogeneity employing three research designs—individual fixed effects, housing-spell fixed effects, and instrumental variables. A one standard deviation increase in leverage reduces the probability of entrepreneurship by 10–20 percent.

Published in

Journal of Urban Economics

Volume and page numbers

103 , 52 -66

DOI

http://dx.doi.org/10.1016/j.jue.2017.10.003

ISSN

16

Subjects

Management: Business, Household Economics, and Housing Market

Notes

Open Access; Open Access funded by Economic and Social Research Council; Under a Creative Commons license


Related publications

  1. Mortgage debt and entrepreneurship

    Philippe Bracke, Christian Hilber, and Olmo Silva

    1. Management: Business
    2. Household Economics
    3. Housing Market

#524788


Research home

Research home

News

Latest findings, new research

Publications search

Search all research by subject and author

Podcasts

Researchers discuss their findings and what they mean for society

Projects

Background and context, methods and data, aims and outputs

Events

Conferences, seminars and workshops

Survey methodology

Specialist research, practice and study

Taking the long view

ISER's annual report

Themes

Key research themes and areas of interest