nep-ent New Economics Papers
on Entrepreneurship
Issue of 2010‒10‒23
fifteen papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. Innovation by Entrants and Incumbents By Daron Acemoglu; Dan Vu Cao
  2. Employment Growth from the Small Business Innovation Research Program By Link, Albert; Scott, John
  3. Overconfidence and risk dispersion By Heller, Yuval
  5. The impact of the financial crisis on new firm registration By Klapper, Leora; Love, Inessa
  6. Liquidity, risk and occupational choices By Milo Bianchi; Matteo Bobba
  7. Entrepreneurship and market size. The case of young college graduates in Italy By Sabrina Di Addario; Daniela Vuri
  8. Firm Exit and Armed Conflict in Colombia By Camacho, Andriana; Rodriguez, Catherine
  9. Understanding the Drivers of an ‘Entrepreneurial’ Economy : Lessons from Japan and the Netherlands By Okamuro, Hiroyuki; Van Stel, André; Verheul, Ingrid
  10. Social Capital and Access to Bank Financing: The Case of Chinese Entrepreneurs By Oleksandr Talavera; Lin Xiong; Xiong Xiong
  11. The Press and the Public Sphere: Magazine Entrepreneurs in Antebellum America By Haveman, Heather A.; Habinek, Jacob; Goodman, Leo A.
  12. Anatomy of cluster development in China: The case of health biotech clusters By Conlé, Marcus; Taube, Markus
  13. Product Diversity, Strategic Interactions and Optimal Taxation By V. LEWIS
  14. Peace, Prosperity, and Pro-Growth Entrepreneurship By Wim Naudé
  15. Small Enterprise Growth and the Rural Investment Climate: Evidence from Tanzania By Kinda, Tidiane; Loening, Josef

  1. By: Daron Acemoglu; Dan Vu Cao
    Date: 2010–10–08
  2. By: Link, Albert (University of North Carolina at Greensboro, Department of Economics); Scott, John (University of North Carolina at Greensboro, Department of Economics)
    Abstract: This paper investigates employment growth in small firms funded by the U.S. Small Business Innovation Research (SBIR) program. Using data collected by the National Research Council for each of five federal agencies, our analysis shows that on average over two-fifths of all projects retained 0 employees after completion and over one-third retained only 1 or 2 employees. Thus, on average, the direct impact of SBIR funded projects on employment is small, especially when compared to the mean number of employees in the firms. However, there are substantial cross-project differences in the number of retained employees that are explained by differences in the firms and their SBIR projects. We find across funding agencies that projects with intellectual property—patents, copyrights, trademarks, or publications—retained more employees after completion of the project. Also, we find that the public funding of research by the SBIR program is more likely to stimulate employment when the government created a market for the products, processes, or services developed by the research projects.
    Keywords: small business research; employment growth; entrepreneurship; intellectual property
    JEL: J48 L53 O38
    Date: 2010–10–11
  3. By: Heller, Yuval
    Abstract: Experimental evidence suggests that people tend to be overconfident in the sense that they overestimate the accuracy of their own predictions. In this paper we present a simple principal-agent model in which principal's interest in dispersing risk motivates him to hire overconfident agents. We show that the induced overconfidence satisfies experimental stylized facts (such as, hard-easy effect, false certainty effect and underuse of base rates). In addition, we show that overconfidence is a unique stable evolutionary strategy, and that it can Pareto-improve social welfare. Finally, we demonstrate applicability by: 1) demonstrating why CEOs hire overconfident intermediate managers, and 2) explaining why investors prefer overconfident entrepreneurs.
    Keywords: overconfidence; risk dispersion; hard-easy effect; evolutionary stability
    JEL: C72 C73
    Date: 2010–09–26
  4. By: Maria De Paola (Dipartimento di Economia e Statistica, Università della Calabria)
    Abstract: This paper studies the relationship between risk attitudes and individual characteristics focusing on the intergenerational transmission of risk preferences. We use a data set on a sample of Italian students allowing us to build different measures of risk aversion, based respectively on a survey asking students about their willing to invest in a risky asset and about their preferences for job security and on the results of an entry test using explicit penalty points in the case of incorrect answers. Consistently with findings emerging form the existing literature, we find that risk aversion is positively related to age, being female and family income and negatively related to individual ability. As far as intergenerational transmission of preferences is concerned, from our analysis it emerges that students whose fathers are entrepreneurs have a higher propensity to take risks, while students whose fathers are employed in the public sector are more risk averse. Only fathers matter for their children risk attitudes. These results are robust to different measures of risk aversion and to different specifications of our model.
    Keywords: risk aversion, college choice, education.
    JEL: I21 Z13 J24
    Date: 2010–10
  5. By: Klapper, Leora; Love, Inessa
    Abstract: The authors use panel data on the number of new firm registrations in 95 countries to study the impact of the business environment and 2008 financial crisis on new firm registration. The data show that more dynamic formal business creation occurs in countries that provide entrepreneurswith a stable legal and regulatory regime, fast and inexpensive business registration process, more flexible employment regulations, and low corporate taxes. The data also show that nearly all countries experienced a sharp drop in business entry during the crisis. This drop is more pronounced in countries with higher levels of financial development and countries more affected by the crisis.
    Keywords: Governance Indicators,E-Business,Emerging Markets,Environmental Economics&Policies,Economic Theory&Research
    Date: 2010–10–01
  6. By: Milo Bianchi; Matteo Bobba
    Abstract: We explore whether financial constraints matter and which financial constraints matter the most in the choice of becoming an entrepreneur. We exploit a randomly assigned welfare program in rural Mexico to show that cash transfers significantly increase entry into entrepreneurship, thereby providing evidence of financial constraints. We then develop a simple model to highlight how liquidity and insurance constraints respond differently to the time profile of expected cash transfers. Exploiting the cross-households variation in the timing of these transfers, we find that current occupational choices are significantly more responsive to the amount of transfers expected for the future than to the amount of transfers currently received. We interpret these findings as evidence that the program has been effective in promoting micro-entrepreneurship by enhancing the willingness to bear risk.
    Date: 2010
  7. By: Sabrina Di Addario (Bank of Italy); Daniela Vuri (University of Rome Tor Vergata)
    Abstract: We analyse empirically the effects of urbanization on Italian college graduates' work possibilities as entrepreneurs three years after graduation. We find that doubling the population density of the province of work reduces the chances of being an entrepreneur by 2-3 percentage points. This result holds after controlling for regional fixed effects and is robust to instrumenting urbanization. Provincial competition, urban amenities and disamenities, cost of labour, earning differentials between employees and self-employed workers, unemployment rates and value added per capita account for more than half of the negative urbanization penalty. Our result cannot be explained by the presence of negative differentials in returns to entrepreneurship between the most and the least densely populated areas either. In fact, as long as they succeed in entering the most densely populated markets, young entrepreneurs are able to reap the benefits of urbanization externalities: doubling the population density of the province of work increases entrepreneurs' net monthly earnings by 2-3 per cent.
    Keywords: Labour market transitions, urbanization
    JEL: R12 J24 J21
    Date: 2010–09
  8. By: Camacho, Andriana; Rodriguez, Catherine
    Abstract: This paper uses two unique panel data sets to study the causal effect that armed conflict has over entrepreneurial activity in Colombia. Using a fixed effect estimation methodology at the plant level and controlling for the possible endogeneity of armed conflict through the use of instrumental variables, we find that a one standard deviation in the number of guerrilla and paramilitary attacks in a municipality increases the probability of firm exit in 8.1 percentage points. This effect is stronger for smaller plants and has a differential impact with respect to firms’ age.
    Keywords: conflict, firm exit, entrepreneurship, Colombia
    Date: 2010
  9. By: Okamuro, Hiroyuki; Van Stel, André; Verheul, Ingrid
    Abstract: Globalization and an increasing importance of knowledge in the production process cause many developed countries to move from a more ‘managed’ to a more ‘entrepreneurial’ economy in recent decades. In the former type of economy, large and incumbent firms play a dominant role, exploiting economies of scale in a relatively certain economic environment. In the latter type, small and new firms play an increasingly important role, introducing new products and services in highly uncertain economic environments while quickly adapting to rapidly changing consumer preferences. The speed of adjustment in this transition process from a managed to an entrepreneurial economy varies by country. In this paper we investigate the differences between a more ‘managed’ economy, Japan, characterized by relatively low levels of entrepreneurial activity, and a more ‘entrepreneurial’ economy, the Netherlands. Building on earlier work by Hartog et al. (2010), who explain cross-country differences in three measures of entrepreneurial activity using five broad groups of explanatory variables, we apply a decomposition analysis to better understand the differences in entrepreneurial activity between Japan and the Netherlands. We find that, in spite of higher levels of entrepreneurial activity in the Netherlands, the institutional framework in the Netherlands is considerably less favourable to entrepreneurship, compared to Japan. On the other hand, cultural differences between the Netherlands and Japan explain a substantial part of the difference in entrepreneurship rates between the two countries.
    Keywords: entrepreneurship, cross-country comparison, Japan, the Netherlands, United States
    Date: 2010–09
  10. By: Oleksandr Talavera (School of Economics, University of East Anglia); Lin Xiong (Robert Gordon University); Xiong Xiong (University of Tianjin)
    Abstract: This paper studies the effects of social capital on access to bank financing. Based on a Chinese nationwide survey our analysis suggests that entrepreneurs who spend more time on social activities are more likely to obtain a loan from commercial banks. In addition, we find that membership of political parties is an important determinant of state bank financing. Finally, our data reveals some evidence of substitutability between various types of social capital. To get a loan from a specific type of bank, an entrepreneur should access the relevant social network. The results of our analysis are robust to a number of specification checks.
    Keywords: China, social capital, entrepreneurs
    JEL: G21 L26
    Date: 2010–10–12
  11. By: Haveman, Heather A.; Habinek, Jacob; Goodman, Leo A.
    Abstract: How has access to the public sphere been affected by the rise of mass media? We address this question by studying magazines in America from the eighteenth century, when all periodicals had small circulations, to the mid-nineteenth century, when many reached mass audiences. Specifically, we investigate how the social positions of those who founded new magazines changed over this period. Previous research is divided on whether the rise of mass media made it more difficult for non-elites and industry outsiders to launch new magazines by creating large and powerful publishing houses, or made it easier by fostering acceptance of magazines as legitimate cultural products and improving access to resources needed for publishing. Using Goodman’s (1972) modification of multiple regression for the analysis of categorical data, we examine whether magazine founders were increasingly drawn from social elite and from inside publishing, or from an increasingly broad swath of society. We find that magazine publishing was originally restricted to industry insiders, elite professionals, and the highly educated, but after the rise of mass media, most founders came from outside publishing and more were of middling stature – mostly small-town doctors and clergy without college degrees. We also find that magazines founded by industry insiders remained concentrated in the major publishing centers, while magazines founded by outsiders became geographically dispersed.
    Date: 2010–08–04
  12. By: Conlé, Marcus; Taube, Markus
    Abstract: Focussing on China's health biotech clusters the study explores the anatomy of interaction in as well as between various clusters. While the literature has identified the existence of a dense network of durable interactions among firms and between firms and academia at a particular location as one of the most important prerequisites for well-performing clusters, we show that network ties extending beyond regional boundaries are equally valuable for the innovative capacity of China's biotech firms. Analysing the demographic process of cluster emergence we show that there exist different types of biotech clusters in China, which are closely linked and exchange knowledge and technology amongst each other. It appears as if further analysis of these cross-cluster links may provide important insights of how learning and innovation works in China's health biotech industry. Although China's science parks and industrial bases may on an individual basis appear to be badly structured, the organization of China's health biotech industry turns out to be substantially enhanced once these external linkages are taken into consideration. --
    Keywords: China,health biotechnology,cluster,entrepreneurship,localization
    Date: 2010
  13. By: V. LEWIS
    Abstract: The entry of a new product increases consumer surplus through additional product di- versity but decreases firm profits. In markets where .rm entry competition and reduces markups through strategic interactions, we expect entry to be excessively high. In a simple general equilibrium model, this is true for industries with very similar goods. If goods are instead highly differentiated, entry is below optimum. In both cases, the optimal policy is a labour subsidy and a tax on entry. If labour subsidies are unavailable, subsidising entry is optimal for industries with low degrees of product differentiation.
    Keywords: product diversity, entry, strategic interactions, optimal taxation
    JEL: E22 E61 E62
    Date: 2010–07
  14. By: Wim Naudé
    Abstract: Support for entrepreneurship is widely seen as a mechanism to facilitate prosperity and peace in a growing number of post-conflict states. In this paper they critically evaluate this view. They argue that entrepreneurship is a ubiquitous quality in post-conflict states but not necessarily always for the good. Unproductive and destructive entrepreneurship may inhibit the resurgence of the private sector and might even cause a relapse into conflict. To limit unproductive and destructive entrepreneurship there are at least six dimensions which need to be taken into consideration, namely: the context of war, the relationship between institutions and entrepreneurship, the role played by ethnic/immigrant (minority) entrepreneurs and entrepreneurs in diaspora, the scope of the market, human and financial capital requirements, and appropriate forms of government support. Further research on entrepreneurship in post-conflict states is needed to overcome the current lack of data, which constrains policy design. [Discussion Paper No. 2007/02]
    Keywords: entrepreneurship, peace, security, reconstruction, development
    Date: 2010
  15. By: Kinda, Tidiane; Loening, Josef
    Abstract: This paper analyzes characteristics of nonfarm enterprises, their employment growth patterns, and constraints in doing business in rural Tanzania. Using unique survey data, the we describe a low-return sector struggling to compete in a challenging business environment. However, about one-third of rural enterprises are growing fast. Most enterprises engage in agricultural trade. Due to a rapidly growing agricultural sector in recent years, limiting demand-side constraints, rural enterprise constraints in Tanzania mainly operate from the supply side, suggesting that in particular access to finance, road infrastructure, and rural cell phone communication is associated with employment growth. A major finding is that subjective and objective measurements of business constraints are broadly comparable. We discuss a number of factors that would help to unleash the full potential of private sector-led growth in rural areas. Marginal improvements in the rural investment climate matter for growth.
    Keywords: Labor markets; rural investment climate; enterprise growth; Tanzania
    JEL: J08 L25 O55
    Date: 2010–03–08

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