nep-ent New Economics Papers
on Entrepreneurship
Issue of 2007‒03‒17
four papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. Entrepreneurship, Liquidity Constraints and Start-up Costs By Raquel Fonseca; Pierre-Carl Michaud; Thepthida Sopraseuth
  2. Turning Unemployment into Self-Employment : Effectiveness and Efficiency of Two Start-Up Programmes By Hans J. Baumgartner; Marco Caliendo
  3. Allocation and Productivity of Time in New Ventures of Female and Male Entrepreneurs By Verheul, I.; Carree, M.A.; Thurik, A.R.
  4. Precautionary Savings and the Importance of Business Owners By Erik Hurst; Arthur Kennickell; Annamaria Lusardi; Francisco Torralba

  1. By: Raquel Fonseca; Pierre-Carl Michaud; Thepthida Sopraseuth
    Abstract: We study the effects of liquidity constraints and start-up costs on the relationship between wealth and the fraction of entrepreneurs in an economy. We develop a dynamic occupational choice model that yields predictions that can be tested on cross-sectional data with exogenous variation in liquidity constraints (e.g. access to credit) and start-up costs. We use three highly comparable micro datasets (SHARE, ELSA and HRS) focusing on the population age 50+ in 9 countries. These countries have very different levels of start-up costs and potential liquidity constraints. Reduced form results support our theoretical predictions. While higher liquidity constraints yield a steeper wealth profile for the fraction of workers in entrepreneurship, startup costs flatten this relationship by depressing the marginal value of being an entrepreneur as a function of wealth. Countries with high start-up costs such as Italy, Spain and France have flatter wealth gradients.
    Keywords: entrepreneurship, liquidity constraints, start-up costs, occupational choice, cross-country comparisons
    JEL: E21 E23 J20
    Date: 2007–02
  2. By: Hans J. Baumgartner; Marco Caliendo
    Abstract: Turning unemployment into self-employment has become a major focus of German active labour market policy (ALMP) in recent years. If effective, this would not only reduce Germany's persistently high unemployment rate, but also increase its notoriously low self-employment rate. Empirical evidence on the effectiveness of such programmes is scarce. The contribution of the present paper is twofold: first, we evaluate the effectiveness of two start-up programmes for the unemployed. Our outcome variables include the probability of being employed, the probability of being unemployed, and personal income. Second, based on the results of this analysis, we conduct an efficiency analysis, i.e., we estimate whether the Federal Employment Agency has saved money by placing unemployed individuals in these programmes. Our results show that at the end of the observation period, both programmes are effective and one is also efficient. The considerable positive effects present a stark contrast to findings from evaluations of other German ALMP programmes in recent years. Hence, ALMP programmes aimed at moving the unemployed into self-employment may prove to be among the most effective, both in Germany and elsewhere
    Keywords: Start-up subsidies, evaluation, effectiveness, efficiency, self-employment
    JEL: J68 C14 H43 M13
    Date: 2007
  3. By: Verheul, I.; Carree, M.A.; Thurik, A.R. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: This paper investigates time allocation decisions in new ventures of female and male entrepreneurs using a new model that distinguishes between preference and (expected) productivity effects on the number of working hours. Using data of 1203 entrepreneurs we find that the preference for work time in new ventures is related to the motivation for starting up a business, the propensity to take risk, the availability of other income sources, firm size and sector. Productivity of work time is explained by human, financial and social capital, outsourcing and firm characteristics. This study also evaluates actual profit effects one year after start-up. With respect to gender we find that ? on average ? women invest less time in the business than men largely due to a lower productivity per working hour, explained by lower endowments of human, social and financial capital.
    Keywords: Time allocation;New ventures;Gender;
    Date: 2007–02–05
  4. 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

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