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on Entrepreneurship |
| By: | Roxana Gutierrez-Romero |
| Abstract: | The paper presents a model where individuals decide to become workers or entrepreneurs in the presence of capital constraints and where individuals differ in wealth levels. The model shows that the higher the initial level of inequality in wealth is, the lower the long run aggregate wealth of the economy and the higher the long run inequality will be. |
| Keywords: | Occupational Choice, Wealth distribution and Inequality. |
| JEL: | D9 D31 D50 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:csa:wpaper:10-08&r=ent |
| By: | Estrin, Saul (London School of Economics); Mickiewicz, Tomasz (University College London) |
| Abstract: | We analyze theoretically and empirically the impact of the shadow economy on entrepreneurial entry, utilising 1998-2005 individual-level Global Entrepreneurship Monitor data merged with macro level variables. A simple correlation coefficient suggests a positive linear link between the size of the shadow economy and entrepreneurial entry. However, this masks more complex relationships. With appropriate controls and instrumenting for potential endogeneity where required, the impact of the shadow economy on entry is found to be negative, based on a linear specification. Moreover, there is also evidence of nonlinearity: entrepreneurial entry is least likely when the shadow economy is of medium size. We attribute the negative effects of shadow economy on entry to perceived strong competition faced by new entrants when the shadow economy is widespread. At the individual level, an extensive shadow economy has a more negative impact on respondents who are risk averse. In addition, in the economies where property rights are strong, the negative impact of the shadow economy is weaker. |
| Keywords: | shadow economy, entrepreneurship |
| JEL: | O17 D2 L26 P14 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5053&r=ent |
| By: | Aidis, Ruta (University College London); Estrin, Saul (London School of Economics); Mickiewicz, Tomasz (University College London) |
| Abstract: | We explore the country-specific institutional characteristics likely to influence an individual's decision to become an entrepreneur. We focus on the size of the government, on freedom from corruption, and on 'market freedom' defined as a cluster of variables related to protection of property rights and regulation. We test these relationships by combining country-level institutional indicators for 47 countries with working age population survey data taken from the Global Entrepreneurship Monitor. Our results indicate that entrepreneurial entry is inversely related to the size of the government, and more weakly to the extent of corruption. A cluster of institutional indicators representing 'market freedom' is only significant in some specifications. Freedom from corruption is significantly related to entrepreneurial entry, especially when the richest countries are removed from the sample but unlike the size of government, the results on corruption are not confirmed by country-level fixed effects models. |
| Keywords: | entrepreneurship, government, market freedom, corruption |
| JEL: | L26 P14 P51 P37 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5052&r=ent |
| By: | Laurence J. Kotlikoff; Jianjun Miao |
| Abstract: | The economics workings of the corporate income tax remain controversial. Harberger’s seminal 1962 article viewed the tax as raising the cost of capital used to produce corporate goods. But corporate goods can be and generally are made by non-corporate firms, suggesting that the corporate tax penalizes the act of incorporating, not the decision of already incorporated firms to hire capital. This paper makes this point with a simple, capital-less model featuring entrepreneurs, with risky production technologies, deciding whether or not to go public. Doing so means selling shares, which is costly and triggers the firm’s classification as a corporation subject to income taxation. But going public has an upside. It permits entrepreneurs to diversify their assets. In discouraging incorporation, the corporate tax taxes business risk-sharing, keeping more entrepreneurs private and, thus, exposed to more risk. The added risk experienced by these entrepreneurs limits their demands for labor whose costs must be paid come what may. And less demand for labor spells a lower wage. Thus, the corporate tax is, as a general rule, borne, in part, by labor. But it is borne primarily by high-skilled entrepreneurs who decide to remain incorporated despite the attendant tax liability. While it hurts high-skilled entrepreneurs and low-skilled workers, the corporate tax benefits middle-skilled entrepreneurs who remain private, but are able, thanks to the tax, to hire labor at a lower cost. The reduction in labor costs has one other key effect. It induces low-skilled entrepreneurs to set up their own risky businesses rather than work for others. This represents a second channel through which the corporate tax induces excessive business. |
| JEL: | H22 H31 H32 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16199&r=ent |
| By: | Anil K Gupta |
| Abstract: | Given the economic distress worldwide, the micro, small and medium scale enterprises (MSME) had been hit hard. Large numbers of workers have been laid off because of depressed demand, piled up inventory, pending retrievables and squeezed credit market. A sector which provides maximum employment cannot be left to fend for itself without a major transformation led by the entrepreneurs, policy makers and also other support organizations. There are several innovative options that one can try at four different levels such as (a) stimulating demand, (b) upgrading technology and skills, (c) promoting innovations for developing new products and services and (d) forging new partnerships among the entrepreneurs and also with the R&D institutions, grassroots innovation networks and the technology students. Some of the urgent steps required are: (a) technology audit of MSMEs by formal R&D institutions, (b) Creation of National Innovation and R&D Fund for MSMEs, dedicated for replacing age old materials, technologies and production processes, (c) awards for innovations by and for MSMEs, particularly, engaging youth as attempted by Karnataka Council of Science and Technology and Indian Institute of Science, Bangalore and (d) dedicated R&D centres for various industrial clusters. This is a painful time for the MSMEs and the workers being laid off. A bipartition approach is required among the major political parties to put forward a revitalization plan. Millions of workers and small entrepreneurs will anyway soon vote on the vision of the parties in taking country out of the current stressful situation. [W.P. No. 2009-03-03] |
| Keywords: | Economic distress, medium scale industries, entrepreneurs, policy makers, technology, skills, R&D institutions, grassroots innovation networks, MSME's |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ess:wpaper:id:2662&r=ent |
| By: | Gian Luca Clementi (New York University and RCEA); Thomas Cooley (New York University and NBER); Sonia Di Giannatal (Centro de Investigación y Docencia Económicas) |
| Abstract: | We study the problem of an investor that buys an equity stake in an entrepreneurial venture, under the assumption that the former cannot monitor the latter’s operations. The dynamics implied by the optimal incentive scheme is rich and quite different from that induced by other models of repeated moral hazard. In particular, our framework generates a rationale for firm decline. As young firms accumulate capital, the claims of both investor (outside equity) and entrepreneur (inside equity) increase. At some juncture, however, even as the latter keeps on growing, invested capital and firm value start declining and so does the value of outside equity. The reason is that incentive provision is costlier the wealthier the entrepreneur (the greater is inside equity). In turn, this leads to a decline in the constrained–efficient level of effort and therefore to a drop in the return to investment. |
| Keywords: | Principal Agent, Moral Hazard, Hidden Action, Incentives, Survival, Firm Dynamics |
| JEL: | D82 D86 D92 G32 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2010.88&r=ent |
| By: | Justin Sandefur |
| Abstract: | The size of the informal sector is commonly associated with low per capita GDP and a poor business environment. Recent episodes of reform and growth in several African countries appear to contradict this pattern. From the mid 1980’s onward, Ghana underwent dramatic liberalization and achieved steady growth, yet average firm size in the manufacturing sector fell from 19 to just 9 employees between 1987 and 2003. I use a new panel of Ghanaian firms, spanning 17 years immediately post-reform, to model firm dynamics that differ markedly from well-established ‘stylized facts’ in the empirical literature from other regions. In contrast with American and European firms, entry of new firms and selection on observable characteristics, rather than within-firm growth, dominates industrial evolution in Ghana. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:csa:wpaper:10-05&r=ent |