Do entrepreneurs consider the risk of their business equity when making investment portfolio allocations? Many people compartmentalize different risks and consider them separately, called mental accounting. Alternatively, the risk substitution hypothesis suggests that entrepreneurs would offset...

The paper introduces a model of enterprise formation in a unionized economy with labor protection and wage bargaining. Enterprise formation is subject to future market risk and is shaped by labor market institutions in the post-entry stage. The predictions of the model are tested in...