nep-ent New Economics Papers
on Entrepreneurship
Issue of 2007‒05‒12
ten papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. China's Entrepreneurs By Linda Yueh
  2. Smart capital in German start-ups - an empirical analysis By Dorothea Schäfer; Dirk Schilder
  3. The attractiveness of central eastern European countries for venture capital and private equity investors By Groh, Alexander P.; Liechtenstein, Heinrich; Lieser, Karsten
  4. From Farming to International Business: The Social Auspices of Entrepreneurship in a Growing Economy By Kaivan Munshi
  5. Nordic Dual Income Taxation of Entrepreneurs By Seppo Kari; Vesa Kanniainen; Jouko Ylä-Liedenpohja
  6. Are Sunk Costs a Barrier to Entry? By Luís Cabral; Thomas Ross
  7. Moral Hazard and Entrepreneurial Failure in a Two-sector Model of Productive Matching - with an Application to the Natural Resource Curse By Perroni, Carlo; Proto, Eugenio
  8. Decomposing differences in total factor productivity across firm size By Laia Castany; Enrique López-Bazo; Rosina Moreno
  9. Are Workers. Enterprises Entry Policies Conventional By Michele Moretto; Gianpaolo Rossini
  10. Accounting for Mexican income inequality during the 1990s By De Hoyos, Rafael E.

  1. By: Linda Yueh
    Abstract: This paper investigates the traits of the self-employed entrepreneurs in urban China, an economy rife with informational and institutional imperfections, under-developed financial markets, but a growing and important non-state sector. The self-employed make on average 20% more than non-entrepreneurs, but are similar in their age, marital status, educational attainment, and socio-economic background. Fewer are Communist Party members and more have experienced unemployment. Social networks are significant in entrepreneurship, while women and older workers are less likely to become self-employed unless they have experienced unemployment. Motivation and drive, as do attitudes toward risk, are also determinative factors.
    Keywords: Asia, China, Self-employment, Entrepreneurship, Social networks
    JEL: J44 O53 O12
    Date: 2007
  2. By: Dorothea Schäfer (German Institute for Economic Research (DIW)); Dirk Schilder
    Abstract: It is still an open question what kind of smart capital relational investors actually supply. We divide smart capital into several components and conduct a survey among 85 German suppliers of start-up finance. The results show that the degree of "smartness" is determined by the financial product used and also by the finan-ciers' institutional background, the duration of the investment and the stage of development of the firm being financed.
    Keywords: Smart capital, start-up financing, venture capital, banks
    JEL: G21 G24 D21 M13 O16
    Date: 2007–05–07
  3. By: Groh, Alexander P. (IESE Business School); Liechtenstein, Heinrich (IESE Business School); Lieser, Karsten (Strategic Capital Management)
    Abstract: We address the attractiveness of Central Eastern European countries for VC/PE investors by the construction of a composite index. For the index composition we refer to the results of numerous prior research papers that investigate relevant parameters determining entrepreneurial activity and/or the engagements of institutional investors. We aggregate the index via five different methods and receive country rankings that vary only slightly, signaling a robust index calculation. We clearly identify six tier groups of attractiveness for all of our sample countries. We compare our index with the actual fundraising activities in the particular countries and reveal a reasonable correlation of both figures. The results highlight the strengths and weaknesses of the particular economies and provide guidelines for political improvements and institutional investors' country allocations.
    Keywords: Venture capital; Private equity; Central Eastern Europe; Economic transition;
    JEL: G23 G24 M13 O16 P34 P52
    Date: 2007–02–19
  4. By: Kaivan Munshi
    Abstract: Entrepreneurship has been traditionally concentrated in the hands of a few small communities in most developing economies. As these economies restructure, it is evident that these communities will be unable to satisfy the increased demand for new entrepreneurs. The analysis in this paper suggests that new business networks will compensate for the weak family background of first-generation entrepreneurs under some circumstances, supporting occupational mobility even in industries with significant barriers to entry. Using new firm-level data on the Indian diamond industry, the empirical analysis documents the important role played by an underlying community network in the expansion from agriculture to international business in one historically disadvantaged community over the course of a single generation.
    JEL: L14 L22 L23 L26 O12
    Date: 2007–04
  5. By: Seppo Kari; Vesa Kanniainen; Jouko Ylä-Liedenpohja
    Abstract: The paper shows how entrepreneurial taxes interact with the career choice of individuals, the quality of entrepreneurs, and their investment behavior. It is particularly relevant to differentiate the early effects on start-up enterprises with substantial uncertainty from the tax effects on mature firms where the uncertainty is resolved. Conditions are derived for the Nordic dual income tax to be neutral and they are found to be stringent. Profit expectations matter. The Nordic dual encourages (discourages) the establishment of new enterprises by entrepreneurs who anticipate high (low) profitability.
    JEL: H25
    Date: 2007–04–05
  6. By: Luís Cabral (New York University); Thomas Ross (University of British Columbia)
    Abstract: The received wisdom is that sunk costs create a barrier to entry— if entry fails, then the entrant, unable to recover sunk costs, incurs greater losses. In a strategic context where an incumbent may prey on the entrant, sunk entry costs have a countervailing effect: they may effectively commit the entrant to stay in the market. By providing the entrant with commitment power, sunk investments may soften the reactions of incumbents. The net effect may imply that entry is more profitable when sunk costs are greater.
    Date: 2007–02
  7. By: Perroni, Carlo (University of Warwick); Proto, Eugenio (University of Warwick)
    Abstract: We analyze a two-sector, general-equilibrium model of productive matching and sorting, where risky production is carried out by pairs of individuals both exerting effort. Risk-neutral (entrepreneurial) individuals can match either with other risk-neutral individuals, or – acting as employers/ insurers – with risk-averse (nonentrepreneurial) individuals. Although the latter option has the potential to generate more surplus, when effort is unobservable and risk is high, the moral hazard problem in mixed matches may be too severe for mixing to be attractive to both risk aversion types, leading to a segregated equilibrium in which risk-averse individuals select low-risk, low-yielding activities. An increase in the return associated with the riskier sector can then trigger a switch from a mixed to a segregated equilibrium, causing aggregate output to fall.
    Keywords: Entrepreneurship ; Matching ; Natural Resources
    JEL: C78 J41 O12 O13
    Date: 2007
  8. By: Laia Castany (Grup de Recerca d'Anàlisi Quantitativa Regional (AQR), Institut de Recerca en Economia Aplicada (IREA), Universitat de Barcelona); Enrique López-Bazo (Grup de Recerca d'Anàlisi Quantitativa Regional (AQR), Institut de Recerca en Economia Aplicada (IREA), Departament d'Econometria, Estadística i Economia Espanyola, Universitat de Barcelona); Rosina Moreno (Grup de Recerca d'Anàlisi Quantitativa Regional (AQR), Institut de Recerca en Economia Aplicada (IREA), Departament d'Econometria, Estadística i Economia Espanyola, Universitat de Barcelona)
    Abstract: This paper investigates the extent to which the gap in total factor productivity between small and large firms is due to differences in the endowment of factors determining productivity and to the returns associated with these factors. We place particular emphasis on the contribution of differences in the propensity to innovate and in the use of skilled labor across firms of different size. Empirical evidence from a representative sample of Spanish manufacturing firms corroborates that both differences in endowments and returns to innovation and skilled labor significantly contribute to the productivity gap between small and large firms. In addition, it is observed that the contribution of innovation to this gap is caused only by differences in quantity, while differences in returns have no effect; in the case of human capital, however, most of the effect can be attributed to increasing differences in returns between small and large firms.
    Keywords: Total Factor Productivity; skilled labor; innovation; firm size; Oaxaca decomposition
    JEL: D24 J24 L25
    Date: 2007–03
  9. By: Michele Moretto (University of Padova); Gianpaolo Rossini (University of Bologna)
    Abstract: One of the main reasons why workers’ enterprises (WE) still represent a relevant chunk of the economy may lie in some affinities with conventional profit maximizing firms. To prove this, we compare the entry policies of WEs and conventional firms when they can decide size at entry while having to stick to it afterwards. Even though short run differences remain, a long run coincidence appears besides that under certainty. Endogenizing size and time of entry in an uncertain dynamic environment we see that WEs enter at the same trigger and size of conventional firms. Both of them wait less and choose a dimension larger than the minimum efficient scale. This may be another way to explain why WE are still an important share of the economy (Hesse and Cihàk, 2007) despite the ongoing mantra of their imminent demise.
    Keywords: Workers’ Enterprises, Entry, Uncertainty, Rigidity
    JEL: G13 J54 L3
    Date: 2007–03
  10. By: De Hoyos, Rafael E.
    Abstract: The author implements several inequality decomposition methods to measure the extent to which total household income disparities can be attributable to sectoral asymmetries and differences in skill endowments. The results show that at least half of total household inequality in Mexico is attributable to incomes derived from entrepreneurial activities, an income source rarely scrutinized in the inequality literature. He shows that education (skills) endowments are unevenly distributed among the Mexican population, with positive shifts in the market returns to schooling associated with increases in inequality. Asymmetries in the allocation of education explain around 20 percent of overall household income disparities in Mexico during the 1990s. Moreover, the proportion of inequality attributable to education endowments increases during stable periods and reduces during the crisis. This pattern is explained by shifts in returns to schooling rather than changes in the distribution of skills. Applying the same techniques to decompose within-sector income differences, the author finds that skill endowments can account for as much as 25 percent of earnings disparities but as little as 5 percent of dispersion in other income sources.
    Keywords: Inequality,Poverty Impact Evaluation,Income,Services & Transfers to Poor,Economic Theory & Research
    Date: 2007–05–01

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