nep-ent New Economics Papers
on Entrepreneurship
Issue of 2008‒04‒12
nine papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. Overoptimism among Founders: The Role of Information and Motivation By Verheul, I.; Carree, M.A.
  2. Unemployment Benefits Crowd Out Nascent Entrepreneurial Activity By Koellinger, Ph.D; Minniti, M.
  3. Would a Flat Tax Stimulate Entrepreneurship in Germany? : A Behavioural Microsimulation Analysis Allowing for Risk By Frank M. Fossen
  4. Second-Best Institutions By Rodrik, Dani
  5. The Lifecycle of Regions By Audretsch, David B; Falck, Oliver; Feldman, Maryann P; Heblich, Stephan
  6. Do Competitive Markets Stimulate Innovation?: An Empirical Analysis Based on Japanese Manufacturing Industry Data By INUI Tomohiko; KAWAKAMI Atsushi; MIYAGAWA Tsutomu
  8. Firm dynamics with infrequent adjustment and learning By Eugenio Pinto
  9. Entry Barriers in Retail Trade By Schivardi, Fabiano; Viviano, Eliana

  1. By: Verheul, I.; Carree, M.A. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: This study empirically investigates factors that influence overoptimism across nascent entrepreneurs. We distinguish between two main groups of determinants (information, motivation) and three types of overoptimism (income, psychological burden, leisure time). Findings indicate that entrepreneurs who have relevant business information are more realistic and that entrepreneurs with a high level of general knowledge, acquired through education or previous (unrelated) entrepreneurial experience, are more overoptimistic. External advice and business planning do not appear to limit subsequent overoptimism. Entrepreneurs are less overoptimistic about the pecuniary or non-pecuniary benefits of self-employment when these benefits are closely related to the initial motivation for starting up the business.
    Keywords: overoptimism;nascent entrepreneurs;information;motivation
    Date: 2008–03–03
  2. By: Koellinger, Ph.D; Minniti, M. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: Analyzing a cross-country panel of 16 OECD countries from 2002 to 2005, we find that higher unemployment benefits crowd out nascent entrepreneurial activity. Our results hold regardless of entrepreneurial motivation (necessity or opportunity) and entrepreneurial type (imitative or innovative).
    Keywords: entrepreneurship;business startups;unemployment benefits
    Date: 2008–03–25
  3. By: Frank M. Fossen
    Abstract: When possible income tax reforms are debated, the suspected impact on entrepreneurship is often used as an argument in favour or against a certain policy. Quantitative ex-ante evaluations of the effect of certain tax reform options on entrepreneurship based on microeconometric research have not been provided by the literature, however. This paper estimates the ex-ante effects of the German tax reform 2000 and of two hypothetical flat tax scenarios on entries into and exits out of self-employment in Germany. For the estimation I apply a microsimulation model which is based on the tax-benefit model STSM and on structural microeconometric models of transitions into and out of self-employment. These structural models include an estimated parameter of risk aversion. The simulation results indicate that flatter tax systems do not encourage, but rather discourage people from choosing self-employment. This is explained by the reduction of entrepreneurs' income risk through progressive taxation.
    Keywords: Entrepreneurship, income taxation, risk, tax reform 2000, flat tax
    JEL: H24 J23 L26 D81
    Date: 2008
  4. By: Rodrik, Dani
    Abstract: The focus of policy reform in developing countries has moved from getting prices right to getting institutions right, and accordingly countries are increasingly being advised to move towards "best-practice" institutions. This paper argues that appropriate institutions for developing countries are instead "second-best" institutions - those that take into account context-specific market and government failures that cannot be removed in short order. Such institutions will often diverge greatly from best practice. The argument is illustrated using examples from four areas: contract enforcement, entrepreneurship, trade openness, and macroeconomic stability.
    Keywords: economic development; governance
    JEL: O1
    Date: 2008–03
  5. By: Audretsch, David B; Falck, Oliver; Feldman, Maryann P; Heblich, Stephan
    Abstract: Major economic transitions, even when they are disruptive, do not occur instantaneously but rather occur over time, as regions within a country change at different rates. Accordingly, these dynamics may be reflected in a geographic lifecycle with different regions characterized by different phases analogous to the industry lifecycle model. In accordance with this argument, this paper tests the hypothesis that regions can be characterized as evolving over a predictable and well-defined lifecycle: (1) an initial entrepreneurial phases where Jacobs externalities and inter-industry start-ups prevail; (2) a routinized phase where innovation takes place within top-performing incumbents; (3) a second entrepreneurial phase characterized by Marshall-Arrow-Romer externalities, leading to intra-industry start-ups in niches; and (4) a second phase of routinization, in which no further innovation takes place, but is instead a phase of structural change. Using data on 74 West German planning regions, we find compelling evidence of a spatial lifecycle.
    Keywords: entrepreneurship; innovation; knowledge externalities; regional development; spatial lifecycle
    JEL: O18 O31 R12
    Date: 2008–03
  6. By: INUI Tomohiko; KAWAKAMI Atsushi; MIYAGAWA Tsutomu
    Abstract: Going all the way back to Schumpeter (1934), economists have long discussed whether market competition stimulates innovation. To reconcile conflicting earlier empirical evidence, Aghion and Griffith (2005) developed a model showing that competition can have both a positive and a negative effect on innovation, depending on the degree of competition in the market. Following Aghion and Griffith's work, this paper empirically examines the effect of market competition - measured either by the Herfindahl Index or the Lerner Index - on productivity growth and R&D intensity using micro data for Japan's manufacturing sector. We found evidence of an inverted U-shaped relationship between competition and innovation when we use the Herfindahl Index as a measure of competition in the market. Especially for the period since 2000, the data lend strong support for the hypothesis of an inverted U-shaped curve. In addition, we examined the effect of new entrants on the innovative activity of incumbents. The results of our estimation using a regulation index as our measure of entry barriers suggest that the effect on incumbents' TFP growth depends on their technology level. When incumbents' technology level is close to the technology frontier in their industry, competition from new entrants induces these firms to make efforts to increase their productivity in order to escape from competition. On the other hand, such competition discourages innovation in firms far from the industrial technology frontier.
    Date: 2008–04
  7. By: Shiho Futagami (Institute for Strategy and Business Economics, University of Zurich); Marilyn M. Helms (Dalton State College, School of Business Administration)
    Abstract: An economic solution for reversing Japan’s financial challenges is entrepreneurship. New ventures are emerging outside the traditional Japanese management systems of lifetime employment, seniority systems, enterprise unions, and the Japanese business culture which stresses a group-oriented, risk-adverse orientation. Governmental changes are slowly improving the climate for entrepreneurship. Using a case study approach, this article follows the development and strategic challenges facing the company, Digimom (or “Digital Mom”) Workers, and profiles the historic and cultural challenges facing a female entrepreneur in Japan. Financial reports as well as a profile of the competitive environment are included. Implications and lessons learned follow the case analysis.
    Keywords: Japanese management, lifetime employment, seniority system, Japanese business culture, entrepreneurship, female entrepreneurship, Internet business, information technology
    JEL: L26 J16
    Date: 2008–04
  8. By: Eugenio Pinto
    Abstract: We propose an explanation for the rapid post-entry growth of surviving firms found in recent studies. At the core of our theory is the interaction between adjustment costs and learning by entering firms about their efficiency. We show that linear adjustment costs, i.e., proportional costs, create incentives for firms to enter smaller and for successful firms to grow faster after entry. Initial uncertainty about profitability makes entering firms prudent since they want to avoid incurring superfluous costs on jobs that prove to be excessive ex post. Because higher adjustment costs imply less pruning of inefficient firms and faster growth of surviving firms, the contribution of survivors to growth in a cohort's average size increases. For the cohort of 1988 entrants in the Portuguese economy, we conclude that survivors' growth is the main factor behind growth in the cohort's average size. However, initial selection is higher and the survivors' contribution to growth is smaller in services than in manufacturing. An estimation of the model shows that the proportional adjustment cost is the key parameter to account for the high empirical survivors' contribution. In addition, firms in manufacturing learn relatively less initially about their efficiency and are subject to larger adjustment costs than firms in services.
    Date: 2008
  9. By: Schivardi, Fabiano; Viviano, Eliana
    Abstract: The 1998 reform of the Italy's retail trade sector delegated the regulation of entry of large stores to the regional governments. We use the local variation in regulation to determine the effects of entry barriers on firms' performance for a representative sample of retailers. We address the endogeneity of entry barriers through local fixed effects and using political variables as instruments. We also control for differences in trends and for area-wide shocks. We find that entry barriers are associated with substantially larger profit margins and substantially lower productivity of incumbent firms. Liberalizing entry has a positive effect on investment in ICT. Consistently, more stringent entry regulation results in higher inflation: lower productivity coupled with larger margins results in higher consumer prices.
    Keywords: entry barriers; productivity growth; technology
    JEL: L11 L5 L81
    Date: 2008–01

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