nep-ent New Economics Papers
on Entrepreneurship
Issue of 2007‒03‒31
eight papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. Turning Unemployment into Self-Employment: Effectiveness and Efficiency of Two Start-Up Programmes By Hans J. Baumgartner; Marco Caliendo
  2. Economics and Politics of Alternative Institutional Reforms By Francesco Caselli; Nicola Gennaioli
  3. On government intervention in the small-firm credit market and its effect on economic performance By Ben R. Craig; William E. Jackson, III; James B. Thomson
  4. Entry, Exit and Productivity: Empirical Results for German Manufacturing Industries By Joachim Wagner
  5. Market power and relationships in small business lending By Elizabeth Laderman
  6. Inequality for Wage Earners and Self-Employed: Evidence from Panel Data. By Pedro Albarrán; Raquel Carrasco; Maite Martínez-Granado
  7. A Richer Understanding of Australia’s Productivity Performance in the 1990s: Improved estimates based upon firm-level panel data By Robert Breunig; Marn-Heong Wong
  8. Computable Markov-Perfect Industry Dynamics: Existence, Purification, and Multiplicity By Doraszelski, Ulrich; Satterthwaite, Mark

  1. By: Hans J. Baumgartner (DIW Berlin); Marco Caliendo (DIW Berlin and IZA)
    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 selfemployment 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: 2007–03
  2. By: Francesco Caselli; Nicola Gennaioli
    Abstract: We compare the economic consequences and political feasibility of reforms aimed at reducingbarriers to entry (deregulation) and improving contractual enforcement (legal reform). Deregulationfosters entry, thereby increasing the number of firms (entrepreneurship) and the average quality ofmanagement (meritocracy). Legal reform also reduces financial constraints on entry, but in addition itfacilitates transfers of control of incumbent firms, from untalented to talented managers. Since whenincumbent firms are better run entry by new firms is less profitable, in general equilibrium legalreform may improve meritocracy at the expense of entrepreneurship. As a result, legal reformencounters less political opposition than deregulation, as it preserves incumbents' rents, while at thesame time allowing the less efficient among them to transfer control and capture (part of) the resultingefficiency gains. Using this insight, we show that there may be dynamic complementarities in thereform path, whereby reformers can skillfully use legal reform in the short run to create a constituencysupporting future deregulations. Generally speaking, our model suggests that "Coasian" reformsimproving the scope of private contracting are likely to mobilize greater political support because —rather than undermining the rents of incumbents — they allow for an endogenous compensation oflosers. Some preliminary empirical evidence supports the view that the market for control ofincumbent firms plays an important role in an industry's response to legal reform.
    Keywords: financial economics, deregulation, meritocracy
    JEL: G34 O11 O16
    Date: 2007–01
  3. By: Ben R. Craig; William E. Jackson, III; James B. Thomson
    Abstract: In this paper we empirically test whether the Small Business Administration’s main guaranteed lending program—the 7(a) program—has a greater impact on economic performance in low-income markets than in others. This hypothesis is predicated on our previous research (Craig, Jackson, and Thomson 2007b), where we investigate aggregate SBA guaranteed lending. In that research we found that the overall impact of SBA guaranteed lending on economic performance is significant and positive in low-income markets.
    Keywords: Small Business Administration ; Small business - Finance ; Economic development
    Date: 2007
  4. By: Joachim Wagner (University of Lueneburg and IZA)
    Abstract: Using panel data from Spain Farinas and Ruano (IJIO 2005) test three hypotheses from a model by Hopenhayn (Econometrica 1992): (H1) Firms that exit in year t were in t-1 less productive than firms that continue to produce in t. (H2) Firms that enter in year t are less productive than incumbent firms in year t. (H3) Surviving firms from an entry cohort were more productive than non-surviving firms from this cohort in the start year. Results for Spain support all three hypotheses. This paper replicates the study using unique newly available panel data sets for all manufacturing plants from Germany (1995-2002). Again, all three hypotheses are supported empirically.
    Keywords: entry, exit, productivity
    JEL: L11 L60
    Date: 2007–03
  5. By: Elizabeth Laderman
    Abstract: The empirical research literature regarding the effects of market structure on small business lending has yielded ambiguous results. This paper empirically tests for the presence of countervailing effects of increases in market concentration on small business loan volume. Countervailing effects would be expected if both the traditional Structure, Conduct, Performance (SCP) paradigm of industrial organization and a paradigm whereby market power benefits the formation of lending relationships (the relationship hypothesis), are at work. Using Community Reinvestment Act (CRA) data on small loans to small businesses, it is found that, on average, across MSAs, SCP effects dominate. But, as predicted by the relationship hypothesis, the negative effects of increases in concentration on small business loan volume are weaker, the greater the presence of young firms and the higher the business failure rate. Relationship effects due to business failure appear to come from highly concentrated MSAs. Endogeneity concerns are further addressed with the estimation of a regression that separates out the effects of changes in the number of lenders from the effects of changes in the sum of squared deviations of market shares.
    Keywords: Small business - Finance
    Date: 2006
  6. By: Pedro Albarrán (Universidad Carlos III de Madrid); Raquel Carrasco (Universidad Carlos III de Madrid); Maite Martínez-Granado (Universidad del País Vasco)
    Abstract: In this paper we study the evolution of income inequality for employees and self-employed workers. We highlight the importance of separately analyze these different sources of income to gain a broader understanding of inequality. Using Spanish panel data on income and consumption from the ECPF for the period 1987-96, we decompose income shocks into a permanent and a transitory component. We find that there are noticeable differences in the evolution of income inequality, as well as in the relative importance of the permanent and transitory components across these groups. Our results points that the evolution of inequality can be basically explained by movements in the transitory component of income for the self-employed, while for the employees it is mainly driven by the permanent component, specially at the end of the period. Given these disparities, it seems that these two sources of income should be studied separately and that different policies are suitable for each group.
    Keywords: Permanent and transitory income inequality, consumption, self-employment
    JEL: D12 D31 D91 E21
    Date: 2007–03–23
  7. By: Robert Breunig; Marn-Heong Wong
    Abstract: Australia’s productivity performance is characterized by important differences across continuing firms, frequent entry of new firms, and substantial exit of firms which, for one reason or another, decide to cease production. These basic facts call into question the appropriateness of measuring productivity using an aggregate production function that is based upon a representative firm. This study relaxes the standard assumptions that industries are comprised of a set of homogeneous firms, the set of which are constant over time. Instead, we apply a semi-parametric production to continue production. The model controls for the relationship between productivity shocks and input choices and the inter-relationship between these and the decision to continue production. Using the Business Longitudinal Survey we estimate an improved set of production functions for twenty-five two-digit industries in Australia. We use these results to examine aggregate industry-level productivity performance. We use a new aggregation method in calculating these changes which allows us to separate productivity changes and output composition changes which sheds new light on industry-level productivity performance in Australia.
    Keywords: Firm-level production function estimation, multi-factor productivity, semiparametric estimation, Australian economic performance
    JEL: D21 D24 L20 C14
    Date: 2007–03
  8. By: Doraszelski, Ulrich; Satterthwaite, Mark
    Abstract: We provide a general model of dynamic competition in an oligopolistic industry with investment, entry, and exit. To ensure that there exists a computationally tractable Markov perfect equilibrium, we introduce firm heterogeneity in the form of randomly drawn, privately known scrap values and setup costs into the model. Our game of incomplete information always has an equilibrium in cutoff entry/exit strategies. In contrast, the existence of an equilibrium in the Ericson & Pakes (1995) model of industry dynamics requires admissibility of mixed entry/exit strategies, contrary to the assertion in their paper, that existing algorithms cannot cope with. In addition, we provide a condition on the model's primitives that ensures that the equilibrium is in pure investment strategies. Building on this basic existence result, we first show that a symmetric equilibrium exists under appropriate assumptions on the model's primitives. Second, we show that, as the distribution of the random scrap values/setup costs becomes degenerate, equilibria in cutoff entry/exit strategies converge to equilibria in mixed entry/exit strategies of the game of complete information. Finally, we provide the first example of multiple symmetric equilibria in this literature.
    Keywords: dynamic oligopoly; industry dynamics; Markov perfect equilibrium
    JEL: C73 L13
    Date: 2007–03

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