nep-ent New Economics Papers
on Entrepreneurship
Issue of 2006‒09‒30
fourteen papers chosen by
Marcus Dejardin
Facultes Universitaires Notre-Dame de la Paix

  2. A composite index of the creative economy with application to regional best practices By Bowen, H.P.; Moesen, W.; Sleuwaegen, L.
  3. Self-Employment and The Intergenerational Transmission of Human Capital By Nathalie Colombier; David Masclet
  4. The Impact of Institutional Settings on Learning Behavior by Venture Capitalists and Start-Ups By Gatti, Anna; Vendelø , Morten Thanning
  5. Competition, Firm Turnover and Productivity Growth By Baldwin, John R.; Gu, Wulong
  6. Precautionary Savings and the Importance of Business Owners By Erik Hurst; Arthur Kennickell; Annamaria Lusardi; Francisco Torralba
  7. Pääomasijoitukset ympäristöalalla ja tilastollisen seurannan kehittäminen By Hannu Hernesniemi; Esa Viitamo
  8. Hiring Freeze and Bankruptcy in Unemployment Dynamics By Pietro Garibaldi
  9. Firm Structure, Multinationals, and Manufacturing Plant Deaths By Andrew B. Bernard; J. Bradford Jensen
  10. What do we know about Firms’ Research Collaboration with Universities? New Quantitative and Qualitative Evidence By Broström, Anders; Lööf, Hans
  11. The Achilles Heel of the Dual Income Tax. The Norwegian Case By Annette Alstadsæter
  12. Technology Replaces Culture in Microcredit Markets: the Case of Italian MAGs By Alessandro Fedele; Federica Calidoni Lundberg
  13. Il diverso modo in cui le piccole imprese misurano il loro successo By Tattara, Giuseppe
  14. Procyclicality, collateral values and financial stability By Prasanna Gai; Peter Kondor; Nicholas Vause

  1. By: Andersson, Martin (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Johansson, Börje (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper introduces a model where new products are introduced by entrepreneurs or innovating firms in a quasi-temporal setting. Market conditions are characterized by monopolistic competition between varieties belonging to the same product group, where varieties can become obsolete over time and hence disappear from demand. Firms that innovate have to make an R&D investment, and a firm’s decision to export a variety to a given market is associated with a market channel investment. The model is used to predict export behavior by firms in different regional milieus, and these predictions are compared with observations from a rich data set describing export activities of Swedish firms. The data set contains firm level information about export flows, where the flow of each variety is associated with the exporting firm’s location, export value, price and destination. In the empirical analysis we examine how the arrival of innovation ideas varies across regions and how this variation depends on regional characteristics.
    Keywords: location; entrepreneurship; innovation; exports; diversity
    JEL: F12 O31 R11 R12
    Date: 2006–09–22
  2. By: Bowen, H.P.; Moesen, W.; Sleuwaegen, L.
    Abstract: This paper develops a “Composite Index of the Creative Economy” (CICE) for the purpose of benchmarking an entity’s (e.g., country or region) creative capacity as reflected by it’s achievement in three dimensions: Innovation, Entrepreneurship and Openness. To determine the weight each sub-dimension should contribute to the total value of the CICE, we introduce a novel method – endogenous weighting – that allows each entity to have its own unique set of “best” weights. This method addresses the issue of whether an entity’s CICE score value reflects underlying capabilities (or lack thereof) or an “inappropriate” weighting of the underlying dimensions. Our endogenous weight method isolates achievement on the underlying dimensions as the source of a higher or lower CICE score value. In this paper we construct a value of the CICE for each of nine regions: Baden-Württemberg, Catalonia, Flanders, Lombardy, Maryland, Nord-Pas-De-Calais, Quebec, Rhône-Alpes, Scotland. A region’s CICE value indicates its distance from “best practice” and can therefore be used to benchmark a region’s creative capacity relative to other regions. In this respect, a focus of our analysis is the relative creative capacity of Flanders. We also examine the absolute and relative achievement of each region on each of the three underlying dimensions to identify specific areas of strength or weakness. The results indicate that Baden-Württemberg ranks highest in terms of creative capacity while Nord-Pas-De-Calais ranks lowest among the nine regions. Flanders ranks 3rd behind 2nd ranked Maryland. However, Flanders’ rank masks that its CICE score value is 25% below that of Baden-Württemberg and 11% below that of Maryland, indicating a non-trivial gap in creative capacity between Flanders and “best practice.” On the three dimensions underlying creative capacity, Flanders ranks 2nd behind Baden-Württemberg on Innovation and Openness, but ranks 7th on Entrepreneurship (only ahead of Rhône-Alpes and Nord-Pas-De-Calais). Flanders’ relatively poor ranking on Entrepreneurship reflects it’s below average level of achievement on each of the three sub-dimensions of Entrepreneurship (ratio of newly established to existing firms, absence of a fear of failure, and venture capital as a share of GDP). This indicates that fostering and improving conditions for Entrepreneurship remains a challenge for Flanders compared to the other top ranked regions.
    Date: 2006–09–22
  3. By: Nathalie Colombier; David Masclet
    Abstract: We use the European Community Household Panel Survey (ECHP) to investigate the determinants of self-employment. More precisely, we consider the influence of immediate social environments and social networks on the choice of self-employment. We conjecture that self-employment is correlated across generations because parents may transmit two classes of informal human capital to their offspring: (1) specific skills for a specific occupation and (2) general managerial skills such as the capacity to acquire autonomy, irrespective of the specific occupation. Our data allow us to dissociate those individuals who are first-generation self-employed from second-generation self-employed (i.e. those whose parents are self-employed), and, among second-generation self-employed, those individuals whose parents are in the same occupation as their offspring. Consistent with our assumptions, we show that having parents who are self-employed increases the probability of being self-employed, even when the individuals do not have the same occupation as their parents. We also observe strong differences between first and second generation self-employed workers. First-generation self-employed are generally younger and more educated than second generation self-employed. Finally our results indicate that first-generation self-employed report higher job satisfaction than second-generation self-employed. <P>Nous étudions dans cet article les déterminants du travail indépendant à partir de l'enquête européenne des ménages (ECHP). Plus particulièrement, nous étudions le rôle joué par l'environnement familial de l'individu. L'originalité de cette étude est de montrer que les parents ne se contentent généralement pas de transmettre à leurs enfants des compétences spécifiques à un métier donné mais également certaines aptitudes managériales non spécifiques à une profession particulière, facilitant ainsi l'accès au statut d'indépendant quel que soit le métier exercé. Nos résultats montrent sans ambiguïté qu'au-delà de la transmission d'un « savoir-faire » favorisant l’accès à un métier spécifique, dans un grand nombre de cas, les parents travailleurs indépendants facilitent également l'accès de leurs enfants au statut d'indépendant et cela bien souvent, quel que soit le métier envisagé. Un autre résultat intéressant de notre étude est qu'’l existe des différences importantes au sein des travailleurs indépendants selon qu’ils ont bénéficié ou non de transmissions intergénérationnelles de la part de parents travailleurs indépendants. On observe par exemple que le niveau d’éducation formelle est davantage discriminant pour les premières générations de travailleurs indépendants (ceux dont les parents ne sont pas travailleurs indépendants) que pour les secondes générations de travailleurs indépendants (ceux dont les parents sont travailleurs indépendants).
    Keywords: human capital, intergenerational links, self-employment, social capital , capital humain, capital social, liens intergénérationnels, travail indépendant
    JEL: J00 J21 C23
    Date: 2006–09–01
  4. By: Gatti, Anna (Department of Informatics, Copenhagen Business School); Vendelø , Morten Thanning (Department of Informatics, Copenhagen Business School)
    Abstract: Our paper reports research from the emerging institutional field of venture capitalists in Europe. In Europe venture capitalism began to emerge about ten years ago, and thus, in Europe the phenomenon has the characteristics of emergence and novelty, as a local in-dustry venture capitalists have yet to develop distinctive characteristics. The European countries do not constitute a homogeneous institutional environment, but must be per-ceived as different local settings, and thus, venture capitalism may evolve into different forms in the various parts of Europe. The objective is to understand if and how differen-ces in local institutional settings affect learning and adaptation by European venture ca-pitalists and start-ups, and thus, affect the processes of field formation. For example, it has been observed that institutional settings can facilitate or discourage learning from direct experience (Herriot et al., 1985). Thus, depending on the institutional settings venture capitalists and start-ups may rely on diffusion of experience in various degrees. Experiences can diffuse from the US, where venture capitalism as an entrepreneurial form evolved in Silicon Valley in the 1970s. In the US venture capitalists represent an institutionalized type of organization with formalized rules and standards, codified be-havior and roles (Suchman, 1995; Suchman et al., 2001). European venture capitalists and start-ups may imitate behavior and rules developed in Silicon Valley, and thus, a second research objective is to understand if and how US venture capitalism affect the evolvement of venture capitalism in Europe. We study the emergence of a venture capitalist industry in Denmark and Italy, and thus, by selecting two countries with distinctive differences in cultures and institutions, we study learning and adaptation by venture capitalists and start-ups in different institutio-nal settings. We suggest that venture capitalists and start-ups perceiving institutional settings as non venture-friendly are more likely to rely on learning by imitation than on trial-and-error learning.
    Keywords: None
    JEL: H00
    Date: 2005–09–18
  5. By: Baldwin, John R.; Gu, Wulong
    Abstract: This paper investigates the extent to which productivity growth is the result of firm turnover as output is shifted from one firm to another, driven by the competitive process. Turnover occurs as some firms gain market share and others lose it. Some of the resulting turnover is due to entry and exit. Another part arises from growth and decline in incumbent continuing firms. This paper proposes a method for measuring the impact of firm turnover on productivity growth and shows that it is far more important than many previous empirical studies have concluded. It argues that firm turnover associated with competition is the main source of aggregate labour productivity growth in Canadian manufacturing industries.
    Keywords: National accounts, Business enterprises, Productivity, Business conditions
    Date: 2006–09–25
  6. By: Erik Hurst (University of Chicago and NBER); Arthur Kennickell (Board of Governors of the Ferderal Reserve System); Annamaria Lusardi (Dartmouth College, Department of Economics); Francisco Torralba (University of Chicago)
    Abstract: In this paper, we show the pivotal role business owners play in estimating the importance of the precautionary saving motive. The fact that business owners hold higher-than-average wealth while facing higher income risk than other households leads to a correlation between wealth and labor income risk regardless of whether or not a precautionary motive is important. Using data from the Panel Study of Income Dynamics in the 1980s and the 1990s, we show that within separate samples of both business owners and non-business owners the size of precautionary savings with respect to labor income risk is modest and accounts for less than ten percent of total household wealth. However, pooling together these two groups leads to an artificially high estimate of the importance of precautionary savings. Data from the Survey of Consumer Finances further confirms that precautionary savings account for less than ten percent of total wealth for both business owners and non-business owners. Thus, while a precautionary saving motive exists and affects all households, it does not give rise to high amounts of wealth in the economy, particularly among those households who face the most volatile labor earnings.
    Keywords: Income Risk, Household Wealth, Entrepreneurship
    JEL: D91
    Date: 2006–06–20
  7. By: Hannu Hernesniemi; Esa Viitamo
    Keywords: venture capital investment, environmental industries, clean technologies, monitoring system, Finland
    JEL: L52 Q50 C10
    Date: 2006–09–27
  8. By: Pietro Garibaldi
    Abstract: This paper proposes a matching model that distinguishes between job creation by existing firms and job creation by firm entrants. The paper argues that vacancy posting and job destruction on the extensive margin, i.e. from firms that enter and exit the labour market, represents a potentially viable mechanism for understanding the cyclical properties of vacancies and unemployment. The model features both hiring freeze and bankruptcies, where the former represents a sudden shut down of vacancy posting at the firm level with labour downsizing governed by natural turnover. A bankrupt firm, conversely, shut down its vacancies and lay offs its stock of workers. Recent research in macroeconomics has shown that a calibration of the Mortensen and Pissarides matching model account for 10 percent of the cyclical variability of the vacancy unemployment ratio displayed by U.S. data. A calibration of the model that explicitly considers hiring freeze and bankruptcy can account for 20 to 35 percent of the variability displayed by the data.
    Keywords: unemployment dynamics, matching models
    JEL: J30
    Date: 2006
  9. By: Andrew B. Bernard (Dartmouth College); J. Bradford Jensen (Institute for International Economics)
    Abstract: Plant shutdowns shape industry productivity, the dynamics of employment, and industrial restructuring. Plant closures account for more than half of gross job destruction in US manufacturing. This paper examines the effects of firm structure on US manufacturing plant closures. Plants belonging to multi-plant firms and those owned by US multinationals are less likely to exit. However, the superior survival chances are due to the characteristics of the plants rather than the nature of the firms. Controlling for plant and industry attributes, we find that plants owned by multi-unit firms and US multinationals are much more likely to close.
    Keywords: Exit, shutdown, closure, multi-plant firms, multinational firms, takeovers, entry costs, agglomeration, specialization
    JEL: D21 D24 F23 L20 L6
    Date: 2006–09
  10. By: Broström, Anders (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This chapter provides an integrated view of knowledge transfer between university and industry by combining two different approaches. First, we report results from an econometric analysis, where recent matching techniques are used on a dataset of 2,071 Swedish firms. Our findings from this analysis strongly suggest that university collaboration has a positive influence on the innovative activity of large manufacturing firms. In contrast, there appears to be an insignificant association between university collaboration and the average service firm’s innovation output. Second, in the pursuit of credible explanations for these findings, we apply a semi-structured interview methodology on 39 randomly selected firms collaborating with two research universities in Stockholm, Sweden. We identify three ideas for how collaboration may help firms become more innovative in the literature of innovation studies. In analysis of the interviews, we find very weak support for the first idea; that firms are able to exploit and market innovations originating in the university. The second idea – that firms improve their internal innovative capability by collaboration – is found to apply to about half of the investigated firms. Innovation efficiency gains in the form of reduced cost and risk for innovation projects, which is a third idea suggested by the literature, are also suggested to be a major factor behind firms’ benefits. Finally, we offer tentative explanations for the lack of measurable effects of collaboration for service firms.
    Keywords: University-Industry Link; Innovation; Technology transfer; R&D; Research collaboration
    JEL: C10 I23 O31 O33
    Date: 2006–08–28
  11. By: Annette Alstadsæter (Statistics Norway)
    Abstract: The dual income tax provides the self-employed individual with large incentives to participate in tax minimizing income shifting. The present paper analyses the income shifting incentives under the Norwegian split model in the presence of technology risk, and it concludes that the widely held corporation serves as a tax shelter for high-income self-employed individuals. In addition, real capital investments with a low risk profile are means to shift income from the labor income tax base to the capital income tax base for the high-income self-employed.
    Keywords: Dual income tax; tax avoidance; risky investments; choice of organizational form
    JEL: H24 H25 H32
    Date: 2006–09
  12. By: Alessandro Fedele; Federica Calidoni Lundberg
    Abstract: We collect data from three Italian microcredit institutions, MAG2, MAG4 and MAG6, which operate in Milan, Turin and Reggio Emilia respectively, by targeting two categories of wealthless borrowers: single entrepreneurs and organizations (cooperatives and associations). Evidence shows that organizations repay with higher probability and are charged a lower average interest rate than individuals. We use these findings to construct a lending scheme which consists of granting loans provided that borrowers form production teams (i.e. organizations). We consider a microcredit market with adverse selection à la De Meza-Webb and we verify that both repayment rate and welfare increase, while interest rate falls with respect to individual lending if the above scheme, which we refer to as production team lending, is implemented. Our instrument, like joint liability implemented in rural economies, is able to extract information from borrowers through a peer selection mechanism but, differently from joint liability, fits to urban contexts where borrowers do not know each other and social sanctions are weak.
    Keywords: microcredit, urban areas, production team lending.
    JEL: D82 L31 O12 O16
    Date: 2006–09
  13. By: Tattara, Giuseppe
    Abstract: The study begins with a discussion of the thesis that Italy, in respect to other countries with similar growth, has a relatively large number of small companies. This is often considered the cause of modest performance of the Italian economic system in terms of growth and efficiency. The paper explains that small companies should not be considered as isolated, but as part of a complex network strategy. In this context, small company performance should be evaluated as a joint product which includes the results attained by the remaining part of the network. An illustrative example of this evolution regarding the clothing sector in Veneto, explains the relationship between small subcontractors and larger end product companies. The extension of the network outside national borders raises some problems about the role played by Italian districts, especially with reference to their social milieu.
    Keywords: Small firm; Industrial Organization; Firm Size; Value Chain; Italy
    JEL: L11
    Date: 2005–02–01
  14. By: Prasanna Gai; Peter Kondor; Nicholas Vause
    Abstract: This paper analyses how the risk-sharing capacity of the financial system varies over the business cycle, leading to procyclical fragility. We show how financial imperfections contribute to underinsurance by entrepreneurs, generating an externality that leads to the build-up of systematic risk during upturns. Increased asset price uncertainty emerges as a symptom of the sectoral concentration that builds up during booms. The liquidity of the collateral asset is shown to play a key role in amplifying the financial cycle. The welfare costs of financial stability, in terms of the efficiency costs due to financial frictions and the volatility costs due to amplification, are also illustrated.

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