| Borrowing constraints are believed to limit households' ability to undertake entrepreneurial projects, with important aggregate consequences. Current research estimates that they reduce in 30% the level of economic activity. This dissertation shows that their effect is considerably less important, as financially constrained households search for capitalist partners, with whom to share the ownership and control of their firms.; The research is divided in three stages. The first one is empirical, oriented to (a) determine the observable differences between firms---entrepreneurs in teams and those in sole proprietorships, and (b) to find out whether these differences support the idea of teams being formed to surmount borrowing constraints. In the US, partners are found to be only a quarter of all entrepreneurs. They are wealth-and-income richer than sole proprietors, keeping a larger proportion of their assets in the business. Their firms account for half of total output, assets and employment; yield higher returns and require substantially larger initial investments; confirming that financial frictions play a key role in the formation of teams.; The second stage comprises the development and calibration of an entrepreneurial choice model with borrowing constraints, in which households manage firms individually or in pairs. In a partnership, both owners provide capital and ideas, with only the best business idea being implemented. To start a team, a household must search for a partner and, once found, bargain with him over how to split the firm's profits.; This is the first macro model connecting the theory of individually owned and publicly traded firms. In it, only households with very profitable ideas or significant wealth end up searching for a match and organizing in teams. This complementarity between partners is what makes the model quantitatively successful in explaining the differences between partners and sole proprietors found in the data.; The last stage evaluates the aggregate consequences of partnerships using the calibrated model. The main finding is that introducing private equity markets increases output by 5.6% and capital by 7%, reducing in 26% the impact of borrowing constraints; but considerably raising at the same time the degree of wealth inequality in the economy. |
