What do Small Businesses Do?
AbstractIn this paper, we show that most small business owners are very different from the entrepreneurs that economic models and policy makers often have in mind. Using new data that samples early stage entrepreneurs just prior to business start up, we show that few small businesses intend to bring a new idea to market. Instead, most intend to provide an existing service to an existing market. Further, we find that most small businesses have little desire to grow big or to innovate in any observable way. We show that such behavior is consistent with the industry characteristics of the majority of small businesses, which are concentrated among skilled craftsmen, lawyers, real estate agents, doctors, small shopkeepers, and restaurateurs. Lastly, we show non pecuniary benefits (being oneâs own boss, having flexibility of hours, etc.) play a first-order role in the business formation decision. We then discuss how our findings suggest that the importance of entrepreneurial talent, entrepreneurial luck, and financial frictions in explaining the firm size distribution may be overstated. We conclude by discussing the potential policy implications of our findings.
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Bibliographic InfoArticle provided by Economic Studies Program, The Brookings Institution in its journal Brookings Papers on Economic Activity.
Volume (Year): 43 (2011)
Issue (Month): 2 (Fall) ()
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small business; behavior; policy implications;
Other versions of this item:
- L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
- L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Galina Vereshchagina & Hugo A. Hopenhayn, 2009.
"Risk Taking by Entrepreneurs,"
American Economic Review, American Economic Association,
American Economic Association, vol. 99(5), pages 1808-30, December.
- Hugo A. Hopenhayn & Galina Vereshchagina, 2003. "Risk Taking by Entrepreneurs," RCER Working Papers, University of Rochester - Center for Economic Research (RCER) 500, University of Rochester - Center for Economic Research (RCER).
- Xavier Gabaix, 2008.
"Power Laws in Economics and Finance,"
NBER Working Papers
14299, National Bureau of Economic Research, Inc.
- Audretsch, David B. & Keilbach, Max C. & Lehmann, Erik E., 2006. "Entrepreneurship and Economic Growth," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780195183511, October.
- Zoltan Acs & David Audretsch, 1990. "Innovation and Small Firms," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262011131, December.
- Silvia Ardagna & Annamaria Lusardi, 2008. "Explaining International Differences in Entrepreneurship: The Role of Individual Characteristics and Regulatory Constraints," NBER Working Papers 14012, National Bureau of Economic Research, Inc.
- Evans, David S & Leighton, Linda S, 1989. "Some Empirical Aspects of Entrepreneurship," American Economic Review, American Economic Association, American Economic Association, vol. 79(3), pages 519-35, June.
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