Entrepreneurial human capital, family connections and social mobility

This paper extends Carillo et al. [2019] by introducing bequest-financed monetary costs of entrepreneurial education into a dynastic family-firm model with heterogeneous talent. Family firms can be managed through two technologies: entrepreneurial human capital or inherited family-specific managerial assets. Under credit frictions, educational access depends on parental resources, so occupational choice is jointly determined by descendants’ ability and dynastic wealth. The model delivers two long-run regimes. First, when education costs and inherited-asset productivity are moderate, the economy converges to a polarization equilibrium with coexistence of well-managed and badly managed family firms, positive social mobility, and positive growth. Second, when worker dynasties are systematically constrained, the economy falls into a low-mobility equilibrium with dynastic entrepreneurial persistence and lower growth. The framework identifies how education finance, family connections, and managerial selection interact to shape social mobility, talent allocation, and development.