Abstract

This paper applies a recent approach, developed in the entrepreneurial finance literature, to estimate opportunity cost of capital for Italy. Specifically, the cost of capital is analyzed both for under-diversified entrepreneurs and for well diversified investors. Classifying entrepreneurial projects by industries, three main results are obtained: a) the greater the degree of total risk of a project, the greater the cost of capital; b) the less the entrepreneur's commitment on the project, the less the cost of capital; c) the less the correlation between the project returns and the market returns, the greater the benefits of commitment reduction.