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on Entrepreneurship |
| By: | Raquel Fonseca (RAND); Pierre-Carl Michaud (RAND and IZA); Thepthida Sopraseuth (EPEE, University of Evry) |
| 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 with endogenous wealth and entry into entrepreneurship. The model predicts that, with liquidity constraints, the probability of entering entrepreneurship is an increasing function of individual wealth while the introduction of start-up costs tends to flatten this relationship. The theoretical predictions can be tested on cross-sectional data with exogenous variation in liquidity constraints (e.g. access to credit) and business start-up costs. We use three highly comparable micro datasets (SHARE, ELSA and HRS) providing harmonized data on wealth and work status in 9 countries that characterized by very different levels of start-up costs and liquidity constraints. Our results support our theoretical predictions. While higher liquidity constraints yield a positive relationship with wealth profile for the fraction of workers in entrepreneurship, start-up costs weaken 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, wealth, liquidity constraints, start-up costs |
| JEL: | E20 D31 J62 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2874&r=ent |
| By: | Vesa Kanniainen (University of Helsinki); Panu Poutvaara (University of Helsinki and IZA) |
| Abstract: | This paper identifies several distortions which create barriers to entrepreneurship. First, in addition to the innate entry cost, there are entry costs caused by regulation. Second, union wage policies raise the opportunity cost of entrepreneurship. Third, inefficiencies in the transmission of tacit knowledge between generations of entrepreneurs can arise: with access to within-family ownership transfer, the outside market for entrepreneurship operates as a lemon’s market. This problem becomes relevant when the economic life of a business idea exceeds the active life of an entrepreneur. |
| Keywords: | barriers to entrepreneurship, tacit knowledge, occupational choice |
| JEL: | J24 H25 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2859&r=ent |
| By: | Satyajit Chatterjee; Esteban Rossi-Hansberg |
| Abstract: | We propose a theory of firm dynamics in which workers have ideas for new projects that can be sold in a market to existing firms or implemented in new firms: spin-offs. Workers have private information about the quality of their ideas. Because of an adverse selection problem, workers can sell their ideas to existing firms only at a price that is not contingent on their information. We show that the option to spin off in the future is valuable so only workers with very good ideas decide to spin off and set up a new firm. Since entrepreneurs of existing firms pay a price for the ideas sold in the market that implies zero expected profits for them, firms' project selection is independent of their size, which, under some assumptions, leads to scale-independent growth. The entry and growth process of firms in this economy leads to an invariant distribution that resembles the one in the US economy. |
| JEL: | E10 E23 L22 L23 L25 L26 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13198&r=ent |
| By: | David G. Blanchflower (Dartmouth College, Bank of England, NBER, University of Stirling and IZA); Chris Shadforth (External Monetary Policy Committee Unit, Bank of England) |
| Abstract: | This paper examines the causes and consequences of changes in the incidence of entrepreneurship in the UK. Self-employment as a proportion of total employment is high by international standards in the United Kingdom, but the share has fluctuated over time. We examine the time series movements in self-employment, which are dominantly driven by financial liberalisation and changes in taxation rules, especially as they relate to the construction sector which is the dominant sector. We document that the median earnings of the self-employed is less than for employees. We show that in comparison with employees the self-employed are more likely to be male; immigrants; work in construction or financial activities; hold an apprenticeship; work in London; work long hours; have high levels of job satisfaction and happiness. Consistent with the existence of capital constraints on potential and actual entrepreneurs, the estimates imply that the probability of self-employment depends positively upon whether the individual ever received an inheritance or gift. Evidence is also found that rising house prices have increased the self-employment rate. There appears to be no evidence that changes in self-employment are correlated with changes in real GDP, nor national happiness. |
| Keywords: | self-employment |
| JEL: | L26 J23 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2818&r=ent |
| By: | Antonio Ciccone (ICREA and Universitat Pompeu Fabra, Department of Economics and Business, Ramon Trias Fargas 25-27, 08005 Barcelona, Spain.); Elias Papaioannou (European Central Bank, Financial Research Division, Postfach 160319, D-60066 Frankfurt am Main, Germany.) |
| Abstract: | Does cutting red tape foster entrepreneurship in industries with the potential to expand? We address this question by combining the time needed to comply with government entry procedures in 45 countries with industry-level data on employment growth and growth in the number of establishments during the 1980s. Our main empirical finding is that countries where it takes less time to register new businesses have seen more entry in industries that experienced expansionary global demand and technology shifts. Our estimates take into account that proxying global industry shifts using data from only one country–or group of countries with similar entry regulations–will in general yield biased results. JEL Classification: E6, F43, L16. |
| Keywords: | Entry, entry regulation and globally expanding industries. |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070758&r=ent |
| By: | Steven J. Davis; John Haltiwanger; Ron S. Jarmin; C. J. Krizan; Javier Miranda; Alfred Nucci; Kristin Sandusky |
| Abstract: | We develop a preliminary version of an Integrated Longitudinal Business Database (ILBD) that combines administrative records and survey data for all employer and nonemployer business units in the United States. Unlike other large-scale business databases, the ILBD tracks business transitions from nonemployer to employer status. This feature of the ILBD opens a new frontier for the study of business formation, early lifecycle dynamics and the precursors to job creation in the U.S. economy. There are 5.4 million nonfarm business firms with employees as of 2000 and another 15.5 million with no employees. Our analysis focuses on 40 industries that account for nearly half of nonemployers and 36 percent of nonemployer revenues. Within these industries, nonemployers account for 14 percent of business revenues. About 220,000 of the seven million nonemployers in our selected industries hire workers and migrate to the employer universe over a three-year horizon. These Migrants account for 20 percent of revenue among young employers (three years or less since first hire). Compared to other nonemployers, the revenue of Migrants grows very rapidly in the year prior to and the year of transition to employer status. |
| JEL: | C81 D21 L11 |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13226&r=ent |
| By: | Galasso, Emanuela; Almeida, Rita |
| Abstract: | One important concern of governments in developing countries is how to phase out large safety net programs. The authors evaluate the short-run effects of one possible exit strategy-programs that promote self-employment-in Argentina. They provide evidence that a small fraction of beneficiaries were attracted by this program. Overall, potential participants to self-employment are more likely to be female household heads and more educated beneficiaries relative to the average Jefes beneficiaries. Using nonexperimental methods, the authors show that participation in the program does affect the labor supply of participants, by reducing the probability of having an outside job, especially for males, and increasing the total number of hours worked. But the intervention fails to produce on average income gains to participating individuals and households in the short run. The fact that a small subset of former welfare beneficiaries are attracted to the program, coupled with the fact that only a subset of participants (younger and more educated beneficiaries, and with previous self-employment experience) benefited from participation has important implications for this intervention to represent a viable exit strategy from welfare. |
| Keywords: | Poverty Monitoring & Analysis,Labor Markets,Social Accountability,Participations and Civic Engagement,Civic Participation and Corporate Governance |
| Date: | 2007–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4270&r=ent |
| By: | Martin Wörter (KOF Swiss Economic Institute, ETH Zurich) |
| Abstract: | This paper investigates empirically the impact of diversity on the innovation performance of a firm. We created a measure for diversity that mirrors differences in the resource base of firms within an industry and tested its impact on innovation in addition to more traditional factors like technology-push, demand-pull, and firm-size, based on panel data stemming from three representative cross sectional surveys carried out in the years 1996, 1999, and 2002 respectively. In fact, diversity has a significant positive impact on the innovation intensity of firms and thus supports more theoretical findings in this area. We also find empirical evidence for the technology push and the demand pull hypotheses as well as the importance of competition for innovation. |
| Keywords: | Diversity, Innovation Performance, Evolution of Industries, Jacobs Externalities, Panel data, |
| JEL: | O30 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:07-165&r=ent |