|
on Entrepreneurship |
|
Issue of 2007‒01‒13
twenty-two papers chosen by Marcus Dejardin Facultes Universitaires Notre-Dame de la Paix |
| By: | Douhan, Robin (Department of Economics); Henrekson, Magnus (Research Institute of Industrial Economics) |
| Abstract: | In this introductory chapter to a collective volume dealing with the political economy of entrepreneurship,* we argue, based on a suggested unifying framework, that political economy is a fruitful approach to entrepreneurship. The importance of institutions in structuring such an analysis is also emphasized. The introduction also introduces the selected articles and puts them in context. Vital functions of the capitalist economy are ascribed to the productive entrepreneur, but the selected articles also show that the social value of entrepreneurship must be evaluated as it is realized. Three facets of entrepreneurship are claimed to be of particular importance from a political economy perspective: (i) Entrepreneurship is dynamic in the sense that it adapts to the politically determined institutional framework within which it acts. Under propitious circumstances, it can be a powerful engine of growth, but it can also be channelled in unproductive and destructive directions. (ii) Entrepreneurship enters directly into the political system. The close connection to property rights constitutes a link between entrepreneurship and private versus public ownership and redistribution. Under unfavourable institutional circumstances, rent-seeking and predatory entrepreneurship, via the political system, offer greater profit opportunities than the market. (iii) A political economy approach is necessary in order to understand how the political system shapes the institutional setup. Here, it is emphasized that the distribution of political power is partly determined by economic wealth. Hence, it is relevant to broaden the analysis to the effects on wealth creation and wealth redistribution stemming from entrepreneurial activity. |
| Keywords: | Entrepreneurship; Industrial Policy; Innovation; Property Rights; Regulation; Self-employment |
| JEL: | H32 L25 L50 M13 O31 P14 |
| Date: | 2007–01–03 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0688&r=ent |
| By: | Andrea Caggese (Economics and Business Pompeu Fabra University) |
| Abstract: | A number of studies show that entrepreneurial households face a large amount of unvidersifiable risk. This paper studies the effects of this risk on the relationship between uncertainty, innovation and investment dynamics. In the first part of the paper we develop a simple model of a risk averse entrepreneurial household that can invest in a risky technology or in a risk free asset. The idiosyncratic risk of the technology is not insurable. We calibrate the model so that a simulated industry of entrepreneurial households matches the cross sectional volatility of profits and the distribution of the concentration of wealth (the percentage of net worth that each entrepreneurial household invests in their own business) across US entrepreneurial households. We show that, due to the lack of diversification, a small increase in uncertainty has a large negative effect on the investment decisions of entrepreneurial firms. Given that entrepreneurial firms are on average much smaller than publicly owned firms, this result provides a plausible explanation of the findings of Ghosal and Loungani (2000), who show that the negative impact of uncertainty on investment is much greater in US industries dominated by small firms than in those dominated by large firms. In the second part of the paper we study a unique dataset of italian manufacturing firms with both information about the property structure and about the type of investment performed by the firms. We show that an increase in uncertainty negatively affects the investment in innovation of entrepreneurial firms, while it does not affect the investment in innovation of non entrepreneurial firms |
| Keywords: | Entrepreneurial Risk, Investment, Innovation |
| JEL: | G1 O31 |
| Date: | 2006–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed006:412&r=ent |
| By: | Zhu Wang (Payments System Research Federal Reserve Bank of Kansas City) |
| Abstract: | This paper explains market turbulence, such as the recent dotcom boom/bust cycle, as equilibrium industry dynamics triggered by technology innovation. When a major technology innovation arrives, a wave of new firms implement the innovation and enter the market. However, if the innovation complements existing technology, some new entrants will later be forced out as more and more incumbent firms succeed in adopting the innovation. It is shown that the diffusion of Internet technology among traditional brick-and-mortar firms is indeed the driving force behind the rise and fall of dotcoms as well as the sustained growth of e-commerce. Systematic empirical evidence from retail and banking industries supports the theoretical findings |
| Keywords: | Technology Diffusion, Industry Dynamics, Shakeout |
| JEL: | E30 L10 O30 |
| Date: | 2006–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed006:508&r=ent |
| By: | David Huffman (University of California, Berkeley); John Quigley (University of California, Berkeley) |
| Abstract: | Among the many sorting functions provided by institutions of higher education, there is a geographic dimension. During the years spent as students and residents of local communities, students develop specific networks and contacts, and perhaps their tastes change as well. After graduation, these students may be more likely to reside in the locality or region in which they have been educated.This paper presents evidence which suggests that the university is important in attracting human capital to the local area and in stimulating entrepreneurial talent in the region.We also measure the strength of the impact of the university on geographical location in one specific instance. For post-graduate professional business and engineering students at Berkeley, we compare the spatial distribution of residences before attending the university and again after graduation.The results are suggestive of the importance of academic institutions in the geographic pattern of agglomerations of footloose scientific firms, such as those in the Silicon Valley just south of San Francisco. The results also reinforce the self-interested reasons for government investment in high-quality educational institutions, as measured by the return on the augmented human capital stock in the region. |
| Date: | 2006–06–27 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:bphupl:1044&r=ent |
| By: | António Antunes (Banco de Portugal, Departamento de Estudos Economicos, and Faculdade de Economia, Universidade Nova de Lisboa); Tiago Cavalcanti (Departamento de Economia, Universidade Federal de Pernambuco, INOVA, Faculdade de Economia, Universi-dade Nova de Lisboa.); Anne Villamil (Department of Economics, University of Illinois at Urbana- Champaign) |
| Abstract: | This paper studies the effect of financial repression and contract enforcement on entrepreneurship and economic development. We construct and solve a general equilibrium model with heterogeneous agents, occupational choice and two Financial frictions: intermediation costs and financial contract enforcement. Occupational choice and firm size are determined endogenously, and depend on agent type (wealth and ability) and the credit market frictions. The model shows that differences across countries in intermediation costs and enforcement generate differences in occupational choice, firm size, credit, output and inequality. Counterfactual experiments are performed for Latin American, European, transition and high growth Asian countries. We use empirical estimates of each country's financial frictions, and United States values for all other parameters. The results allow us to isolate the quantitative effect of these financial frictions in explaining the performance gap between each country and the United States. The results depend critically on whether a general equilibrium factor price effect is operative, which in turn depends on whether financial markets are open or closed. This yields a positive policy prescription: If the goal is to maximize steady-state efficiency, financial reforms should be accompanied by measures to increase financial capital mobility. |
| Keywords: | Financial frictions; Financial reform; Occupational choice; Development |
| JEL: | E60 G38 O11 |
| URL: | http://d.repec.org/n?u=RePEc:sca:scaewp:0610&r=ent |
| By: | Rafael Silveira (Economics University of Pennsylvania); Randall Wright |
| Abstract: | We study markets where innovators can sell ideas to entrepreneurs, who may be better at implementing them. These markets are decentralized, with random matching and bargaining. Entrepreneurs hold liquid assets lest potentially profitable opportunities may be lost. We extend existing models of the demand for liquidity along several dimensions, including allowing agents to put deals on hold while they try to raise funds. We determine which ideas get traded in equilibrium, compare this to the efficient outcome, and discuss policy implications. We also discuss several special aspects of ideas, as opposed to generic consumption goods: e.g. they are intermediate inputs; they are indivisible; and they are at least partially public (nonrivalous) goods |
| Keywords: | entrepreneurship, liquidity, random matching, monetary policy |
| JEL: | E40 M13 O31 |
| Date: | 2006–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed006:77&r=ent |
| By: | Galina Vereshchagina (Economics University of Iowa) |
| Abstract: | Empirical studies document differences in firms' response to the introduction of various labor market policies. In particular, large and mature firms tend to participate more actively in targeted employment subsidy programs (under which firms receive subsidies for hiring disadvantaged workers). This paper offers an explanation for this phenomenon and argues that it might have important consequences for policy making. Namely, such behavior of firms may indicate that large and mature firms benefit from the introduction of a new subsidy program, while small and young firms incur indirect costs. In this case, the policy implicitly redistributes profit from young to mature firms and may discourage startups if the entry into the industry is competitive. The resulting decrease in the number of operating firms is likely to have a significant impact on the policy's outcomes. These effects become more pronounced as heterogeneity between young and mature firms increases |
| Keywords: | firm dynamics, labor market policies |
| JEL: | E3 J6 |
| Date: | 2006–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed006:779&r=ent |
| By: | Victor Aguirregabiria; Pedro Mira; Hernan Roman |
| Abstract: | This paper presents an estimable dynamic structural model of an oligopoly retail industry. The model can be estimated using panel data of local retail markets with information on new entries, exits and the size and growth of incumbent firms. In our model, retail firms are vertically and horizontally differentiated, compete in prices, make investments to improve the quality of their businesses, and decide to exit or to continue in the market. The model extends in two important ways the entry-exit model estimated in Aguirregabiria and Mira (2007). First, it includes firm size and growth as endogenous variables. And second, the empirical model has two sources of permanent unobserved heterogeneity: local-market heterogeneity and firm heterogeneity. This allows the researcher to control for potentially important sources of bias when using firm panel data with many local markets and several time periods. |
| Keywords: | Industry dynamics; Oligopoly retail markets; Structural estimation |
| JEL: | L11 L13 C51 |
| Date: | 2007–01–02 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-275&r=ent |
| By: | Flippo Ippolito |
| Abstract: | We develop a model in which cash-constrained entrepreneurs seeks a venture capitalist (VC) to finance a new firm. Costly monitoring is employed by VCs to reduce entrepreneurial moral hazard. When monitoring reveals poor performance, VCs want to punish the entrepreneur with liquidation. However, when assets are specific and liquidation would lead to a loss, VCs choose to renegotiate the terms of financing rather than to liquidate. Renegotiation undermines the threat of liquidation. By giving VCs incentives to monitor and liquidate underperforming projects, the hybrid nature of convertible preferred stock helps reduce this problem. As potential equity holders, VCs are willing to absorb the costs of monitoring because this promotes managerial efficiency and increases expected profits. At the same time as debt holders, VCs are sheltered from loss in a liquidation because they enjoy seniority with respect to common stock holders. |
| Keywords: | venture capital, monitoring, liquidation, convertible preferred stock, vesting |
| JEL: | G21 G24 G32 G33 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:sbs:wpsefe:2006fe12&r=ent |
| By: | Stenkula, Mikael (Research Institute of Industrial Economics) |
| Abstract: | The policy debate in recent years has increasingly focused on issues concerning size distribution of firms and employment. It is often claimed that we are approaching a new economic era where large enterprises have lost their importance in developed economies. This raises the question of what we can say about the size distributions on the basis of currently available European data. How important are large enterprises and can we detect any changes with regard to their importance? How do countries of the European Union differ in this regard? How reliable is available data ? does it permit us to draw any conclusions? Examining the availability and quality of data on European firm size and employment, we find that the existing data is severely limited in a number of respects. Conclusions based on the currently available data must hence be interpreted with considerable caution. However, recent measures by for instance the European Union will greatly improve the availability and quality of firm size data in the future. |
| Keywords: | Business Structure; Industrial Structure; Size Distribution; Small and Medium Sized Enterprises |
| JEL: | L11 O52 |
| Date: | 2006–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0683&r=ent |
| By: | Robert M. Hunt (Research Department Federal Reserve Bank of Philadelphia); Leonard I. Nakamura |
| Abstract: | Using Compustat data, we document that prior to 1980, large R&D per-forming firms had higher R&D intensity (R&D/Sales) than small firms in the same industries. Over the course of the next two decades, in these same in-dustries, small firms came to rival and even surpass large firms in terms of R&D intensity. During this period, corporate R&D intensity nearly doubled and most of the aggregate increase is due to the substantial increase in R&D intensity among small firms. Little of the change in composition is explained by changes in the industrial distribution of R&D. Why did small firms increase their R&D after 1980 and not before? We argue that, after 1980, small firms were able to compete on better terms in industries already dominated by large firms. We show that the patterns we observe in the data are consistent with a straightforward dynamic model of R&D with falling barriers to entry. But what barriers fell? We argue the shift in R&D intensity by small firms was largely due to the electronics revolution. Prior to the 1980s, a large corporate sales and clerical force was an essential factor for the rapid and widespread distribution of new products. This technology clearly favored large, established firms. But the electronics revolution obviated the need for these factors, making entry easier. |
| Keywords: | R&D, barriers to entry, innovation |
| JEL: | O3 |
| Date: | 2006–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed006:121&r=ent |
| 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: | E32 J20 |
| Date: | 2006–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed006:227&r=ent |
| By: | Roberto M Samaniego (Department of Economics George Washington University) |
| Abstract: | The paper presents a vintage capital model that is consistent with the the relationship between the rate of embodied technical change and the rate of entry and exit across industries. In the model, the costs imposed by the regulation of entry may bias the sectoral composition of an economy towards industries in which the rate of technical change is low -- an effect termed technological skew. This prediction matches the empirical relationship between institutional entry costs and several indicators of sectoral composition across industrialized economies |
| Keywords: | Entry, exit, embodied technical change, regulation of entry, sectoral composition, technological skew, information technology, services. |
| JEL: | H25 L63 O33 O38 |
| Date: | 2006–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed006:765&r=ent |
| By: | Satoshi Koibuchi (JSPS Fellow, University of Tokyo); Shin-ichi Fukuda (Faculty of Economics, University of Tokyo) |
| Abstract: | A bank failure can have various consequences for the clients. The adverse impacts might, however, differ between large and small firms. In this paper, we focus on the clients of two large failed Japanese banks - the Long-term Credit Bank of Japan (LTCB) and the Nippon Credit Bank (NCB). We show that subsequent events after bank failures had different consequences between large and small firms. As for the clients of LTCB that had faced "shock therapy", the surviving large firms showed significant recovery of their profits but the surviving small firms did not. In contrast, as for the clients of NCB, the surviving small firms experienced significant decline in their profits when the new bank terminated the banking relationship. |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:tky:jseres:2006cj160&r=ent |
| By: | Fidrmuc, Jarko; Hainz, Christa; Malesich, Anton |
| Abstract: | Banks entering an emerging market face a lot of uncertainty about the risks involved in lending. We use a unique unbalanced panel of nearly 700 short-term loans made to SMEs in Slovakia between January 2000 and June 2005. Of the loans granted, on average 6.0 per cent of the firms defaulted. Several probit models and panel probit models show that liquidity and profitability factors are important determinants of SMEs defaults, while debt factors are less robust. However, we find that above average indebtedness significantly increases the probability of default. Moreover, the legal form that determines liability has important incentive effects. |
| Keywords: | SME; Credit; Loan Default; Mortality Rates; Incentives; Probit; Panel Data |
| JEL: | G33 G21 C25 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:1356&r=ent |
| By: | Roland Andersson (Royal Institute of Technology); John Quigley (University of California, Berkeley); Mats Wilhelmsson (Royal Institute of Technology, Sweden) |
| Abstract: | This paper analyzes the spatial distribution of "creativity" -- the production of new knowledge. We analyze commercial patents granted in Sweden during 1994-2001 using a panel of one hundred labor market areas which encompass the entire country. We relate patent activity to measures of localization and urbanization, to the industrial composition and size distribution of firms, and to the regional distribution of human capital. Our analysis confirms the importance of human capital and research facilities in stimulating regional patent output. Importantly, our results document the importance of agglomeration and spatial factors in influencing creativity: Patent activity is increased in larger and more dense labor markets and in regions in which a larger fraction of the labor force is employed in medium-sized firms. Our results also indicate that creativity is greater in labor markets with more diverse employment bases and in those which contain a larger share of national employment in certain industries, confirming the importance of urbanization and localization economies in stimulating creativity. Our quantitative results suggest that the urbanization of Sweden during the 1990s had an important effect upon the aggregate level of patent activity in the country, leading to increases of up to five percent in aggregate patents. |
| Keywords: | Agglomeration, |
| Date: | 2006–07–13 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:bphupl:1069&r=ent |
| By: | Marco, Alan C. (Vassar College Department of Economics) |
| Abstract: | This paper merges patent citation data with data on pharmaceutical patent expirations, generic entry, and pricing to explore the effects of observable patent characteristics on off-patent and on-patnet pharmaceutical pricing. Using a sample of drug patents facing generic entry in the 1990s, I find that the price of branded drugs increased on average in the face of generic entry. Importantly, I find that the number of patent citations that a drug receives from other firms is correlated with a decrease in markup and a decrease in the duration of the markup. Conversely, self-citations are correlated with higher prices and slower decay in prices. The results indicate that patent citations may signal the degree of inter-molecule substitution. And, importantly, self-citations may indicate a degree of cumulative patenting that enables a firm to effectively extend or strengthen the original patent protection. This research takes a step forward in understanding the distinction between “positive” citations and “negative” citations related to creative destruction. |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:vas:papers:83&r=ent |
| By: | B. CLARYSSE; J. BRUNEEL |
| Abstract: | Nurturing and growing innovative start-ups has become an important point on the political agenda. However, many financial schemes and incubation initiatives that were started up in the mid-nineties were cancelled or down scaled after the dot com bubble. There was a consensus that innovative start-ups need more than just money. Networking and coaching were identified as additional needs. Moreover, the intensity and nature of these needs change over along the different stages of the early life cycle. In this paper we make an in depth study of three approaches to nurture and grow innovative start-ups. Each of these initiatives is also embedded in a totally different national innovation system: Sitra in Finland, Chalmers in Sweden and Anvar/Banque de Développement des PMEs in France. A comparison is made of each approach in terms of its financing, networking and coaching support, along the different stages of the start-up life cycle. |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:06/424&r=ent |
| By: | Robert Axtell; Rich Perline; Daniel Teitelbaum |
| Abstract: | In this report we have summarized our research into the nature of firm growth in the U.S. over the 5 year period 1998-2003 using comprehensive data on U.S. businesses extracted from the Census database. We have analyzed these data with a particular eye to the departures from standard assumptions and results in economics generally, and within the field of industrial organization specifically. It should be noted that our analysis is unusual in an important way compared to most analyses of firm growth rates: the typical size of establishments in the Census database is preponderantly very small - the observed modal size is a single employee. More commonly, growth rate studies use size thresholds thatare well above this, and as a result, the conclusions drawn from such truncated data may be incomplete or distorted. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:sba:wpaper:06rarpdt&r=ent |
| By: | Major Clark III; Chad Moutray; Radwan Saade |
| Abstract: | Historically, small businesses in the United States have received a share of federal procurement dollars not quite commensurate with their relative importance in the U.S. economy. While 99.7 percent of all employer firms are small, they receive about 23 percent of direct federal procurement dollars and almost 40 percent of subcontracting dollars. While subcontracting has been a part of the federal procurement framework, it has not received the same focus and attention as the prime contracting program. The purpose of the paper is fourfold. First, it discusses the importance of the small business sector to the overall economy. Second, it lays out the policy framework for the federal government’s involvement in requiring “other than small” federal prime contractors to subcontract with small businesses. This policy discussion focuses on the period from 1958 to the present. Third, it examines the legislative and regulatory approaches that have been put forth to increase subcontracting opportunities for small businesses; and fourth, it discusses steps needed to improve the American small business subcontracting program to accommodate greater participation by these businesses in new and emerging global markets. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:sba:wpaper:06mccmrs&r=ent |
| By: | Leo van Grunsven |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:egu:wpaper:0611&r=ent |
| By: | Soete, Luc (UNU-MERIT and University of Maastricht); Freeman, Chris (SPRU, University of Sussex) |
| Abstract: | The science-technology-innovation system is one that is continuously and rapidly evolving. The dramatic growth over the last twenty years in the use of science, technology and innovation (STI) indicators appears first and foremost the result of a combination between on the one hand the easiness of computerized access to an increasing number of measures of STI and on the other hand the interest in a growing number of public policy and private business circles in such indicators as might be expected in societies which increasingly use organised science and technology to achieve a wide variety of social and economic objectives and in which business competition is increasingly based on innovation. As highlighted on the basis of 40 years of indicators work, frontiers and characteristics that were important last century may well no longer be so relevant today and indeed may even be positively misleading. |
| Keywords: | Technological Change, Science and Technology, Innovation, Statistical Indicators, Measurement of Economic Growth, Policy Making |
| JEL: | O31 O33 C8 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:unumer:2007001&r=ent |