The Decision to Become an Entrepreneur and the Firm Size Distribution: A Unifying Framework for Policy Analysis

Arbeitspapier

Developing and emerging economies have high entrepreneurship rates and relatively many small firms. There is enormous heterogeneity among these firms and entrepreneurs. This paper presents a simple occupational choice model that captures motives for entrepreneurship at both edges of the size distribution. The model is then used to analyse the effects of productivity growth, distortions, financial and labor market frictions, and risk. Capturing entrepreneurship across the size distribution allows for different reactions of high- and low-ability entrepreneurs to changes in policies and the environment. These may result in powerful general equilibrium effects. In particular, policies affecting high-ability entrepreneurs potentially running large firms can indirectly have a strong effect on entry by low-ability entrepreneurs and thus on the prevalence of small firms.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 7757

Classification and Topics

• Classification: Wirtschaft ; Human Capital; Skills; Occupational Choice; Labor Productivity ; Entrepreneurship ; Macroeconomic Analyses of Economic Development ; Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
• Subject: entrepreneurship ; firm entry and exit ; development ; labor market regulation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Poschke, Markus
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/90032