IDEAS home Printed from https://ideas.repec.org/a/wly/iecrev/v61y2020i2p617-681.html
   My bibliography  Save this article

Entrepreneurship Over The Life Cycle: Where Are The Young Entrepreneurs?

Author

Listed:
  • Andrés Hincapié

Abstract

Most individuals do not start a business and, if they do, they start well into their 30s. To explain these stylized facts, I estimate a dynamic Roy model with experience accumulation, risk aversion, and imperfect information about ability using the Panel Study of Income Dynamics. Information frictions and income risk reduce entrepreneurship by up to 40% and 35%, respectively. Entry costs and information frictions explain most of the delayed entry. Results from counterfactual policies targeting delayed entry suggest that entrepreneurship education can yield higher returns than subsidies. Fostering young entrepreneurship yields higher returns than fostering old entrepreneurship.

Suggested Citation

  • Andrés Hincapié, 2020. "Entrepreneurship Over The Life Cycle: Where Are The Young Entrepreneurs?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(2), pages 617-681, May.
    • Handle: RePEc:wly:iecrev:v:61:y:2020:i:2:p:617-681
    DOI: 10.1111/iere.12436
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/iere.12436
    Download Restriction: no
    File URL: https://libkey.io/10.1111/iere.12436?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Levon Barseghyan & Francesca Molinari & Ted O'Donoghue & Joshua C. Teitelbaum, 2013. "The Nature of Risk Preferences: Evidence from Insurance Choices," American Economic Review, American Economic Association, vol. 103(6), pages 2499-2529, October.
    2. Francine Lafontaine & Kathryn Shaw, 2016. "Serial Entrepreneurship: Learning by Doing?," Journal of Labor Economics, University of Chicago Press, vol. 34(S2), pages 217-254.
    3. Robert Gertner, 1993. "Game Shows and Economic Behavior: Risk-Taking on "Card Sharks"," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(2), pages 507-521.
    4. Sumru Altuğ & Robert A. Miller, 1998. "The Effect of Work Experience on Female Wages and Labour Supply," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 65(1), pages 45-85.
    5. Barton H. Hamilton & Nicholas W. Papageorge & Nidhi Pande, 2019. "The right stuff? Personality and entrepreneurship," Quantitative Economics, Econometric Society, vol. 10(2), pages 643-691, May.
    6. von Graevenitz, Georg & Harhoff, Dietmar & Weber, Richard, 2010. "The effects of entrepreneurship education," Journal of Economic Behavior & Organization, Elsevier, vol. 76(1), pages 90-112, October.
    7. Holtz-Eakin, Douglas & Penrod, John R. & Rosen, Harvey S., 1996. "Health insurance and the supply of entrepreneurs," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 209-235, October.
    8. Jovanovic, Boyan & Nyarko, Yaw, 1996. "Learning by Doing and the Choice of Technology," Econometrica, Econometric Society, vol. 64(6), pages 1299-1310, November.
    9. Victor Aguirregabiria & Pedro Mira, 2002. "Swapping the Nested Fixed Point Algorithm: A Class of Estimators for Discrete Markov Decision Models," Econometrica, Econometric Society, vol. 70(4), pages 1519-1543, July.
    10. Meghan M. Skira, 2015. "Dynamic Wage And Employment Effects Of Elder Parent Care," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56, pages 63-93, February.
    11. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-990, October.
    12. Thierry Magnac & David Thesmar, 2002. "Identifying Dynamic Discrete Decision Processes," Econometrica, Econometric Society, vol. 70(2), pages 801-816, March.
    13. Kate Antonovics & Limor Golan, 2012. "Experimentation and Job Choice," Journal of Labor Economics, University of Chicago Press, vol. 30(2), pages 333-366.
    14. V. Joseph Hotz & Robert A. Miller, 1993. "Conditional Choice Probabilities and the Estimation of Dynamic Models," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(3), pages 497-529.
    15. Youjin Hahn & Hee-Seung Yang, 2016. "Do Work Decisions among Young Adults Respond to Extended Dependent Coverage?," ILR Review, Cornell University, ILR School, vol. 69(3), pages 737-771, May.
    16. Alma Cohen & Liran Einav, 2007. "Estimating Risk Preferences from Deductible Choice," American Economic Review, American Economic Association, vol. 97(3), pages 745-788, June.
    17. Fairlie, Robert W. & Kapur, Kanika & Gates, Susan, 2011. "Is employer-based health insurance a barrier to entrepreneurship?," Journal of Health Economics, Elsevier, vol. 30(1), pages 146-162, January.
    18. MaCurdy, Thomas E, 1981. "An Empirical Model of Labor Supply in a Life-Cycle Setting," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1059-1085, December.
    19. Erik Hurst & Annamaria Lusardi, 2004. "Liquidity Constraints, Household Wealth, and Entrepreneurship," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 319-347, April.
    20. Ross Levine & Yona Rubinstein, 2017. "Smart and Illicit: Who Becomes an Entrepreneur and Do They Earn More?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(2), pages 963-1018.
    21. Robert Gibbons & Lawrence F. Katz & Thomas Lemieux & Daniel Parent, 2005. "Comparative Advantage, Learning, and Sectoral Wage Determination," Journal of Labor Economics, University of Chicago Press, vol. 23(4), pages 681-724, October.
    22. Keane, Michael P & Wolpin, Kenneth I, 1997. "The Career Decisions of Young Men," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 473-522, June.
    23. George‐Levi Gayle & Limor Golan & Robert A. Miller, 2015. "Promotion, Turnover, and Compensation in the Executive Labor Market," Econometrica, Econometric Society, vol. 83, pages 2293-2369, November.
    24. Miller, Robert A, 1984. "Job Matching and Occupational Choice," Journal of Political Economy, University of Chicago Press, vol. 92(6), pages 1086-1120, December.
    25. Souitaris, Vangelis & Zerbinati, Stefania & Al-Laham, Andreas, 2007. "Do entrepreneurship programmes raise entrepreneurial intention of science and engineering students? The effect of learning, inspiration and resources," Journal of Business Venturing, Elsevier, vol. 22(4), pages 566-591, July.
    26. George-Levi Gayle & Robert A. Miller, 2009. "Has Moral Hazard Become a More Important Factor in Managerial Compensation?," American Economic Review, American Economic Association, vol. 99(5), pages 1740-1769, December.
    27. Metrick, Andrew, 1995. "A Natural Experiment in "Jeopardy!"," American Economic Review, American Economic Association, vol. 85(1), pages 240-253, March.
    28. Gustavo Manso, 2016. "Experimentation and the Returns to Entrepreneurship," Review of Financial Studies, Society for Financial Studies, vol. 29(9), pages 2319-2340.
    29. Benjamin R. Handel, 2013. "Adverse Selection and Inertia in Health Insurance Markets: When Nudging Hurts," American Economic Review, American Economic Association, vol. 103(7), pages 2643-2682, December.
    30. Peter Arcidiacono & Robert A. Miller, 2011. "Conditional Choice Probability Estimation of Dynamic Discrete Choice Models With Unobserved Heterogeneity," Econometrica, Econometric Society, vol. 79(6), pages 1823-1867, November.
    31. Oosterbeek, Hessel & van Praag, Mirjam & Ijsselstein, Auke, 2010. "The impact of entrepreneurship education on entrepreneurship skills and motivation," European Economic Review, Elsevier, vol. 54(3), pages 442-454, April.
    32. Francisco Buera, 2009. "A dynamic model of entrepreneurship with borrowing constraints: theory and evidence," Annals of Finance, Springer, vol. 5(3), pages 443-464, June.
    33. John Haltiwanger & Erik Hurst & Javier Miranda & Antoinette Schoar, 2017. "Measuring Entrepreneurial Businesses: Current Knowledge and Challenges," NBER Books, National Bureau of Economic Research, Inc, number halt14-1, March.
    34. Haltiwanger, John & Hurst, Erik & Miranda, Javier & Schoar, Antoinette (ed.), 2017. "Measuring Entrepreneurial Businesses," National Bureau of Economic Research Books, University of Chicago Press, number 9780226454078, December.
    35. Dan Lovallo & Colin Camerer, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March.
    36. Scott Shane, 2009. "Why encouraging more people to become entrepreneurs is bad public policy," Small Business Economics, Springer, vol. 33(2), pages 141-149, August.
    37. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Naijia Guo & Charles Ka Yui Leung, 2021. "Do elite colleges matter? The impact on entrepreneurship decisions and career dynamics," Quantitative Economics, Econometric Society, vol. 12(4), pages 1347-1397, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sebastian Galiani & Juan Pantano, 2021. "Structural Models: Inception and Frontier," NBER Working Papers 28698, National Bureau of Economic Research, Inc.
    2. Limor Golan & Carl Sanders & Jonathan James, 2019. "What Explains the Racial Gaps in Task Assignment and Pay Over the Life-Cycle?," 2019 Meeting Papers 320, Society for Economic Dynamics.
    3. Gendron-Carrier, Nicolas, 2023. "Prior Work Experience and Entrepreneurship: The Careers of Young Entrepreneurs," IZA Discussion Papers 16145, Institute of Labor Economics (IZA).
    4. Arcidiacono, Peter & Miller, Robert A., 2020. "Identifying dynamic discrete choice models off short panels," Journal of Econometrics, Elsevier, vol. 215(2), pages 473-485.
    5. Pierre Azoulay & Benjamin F. Jones & J. Daniel Kim & Javier Miranda, 2020. "Age and High-Growth Entrepreneurship," American Economic Review: Insights, American Economic Association, vol. 2(1), pages 65-82, March.
    6. Aguirregabiria, Victor & Mira, Pedro, 2010. "Dynamic discrete choice structural models: A survey," Journal of Econometrics, Elsevier, vol. 156(1), pages 38-67, May.
    7. Keane, Michael P. & Todd, Petra E. & Wolpin, Kenneth I., 2011. "The Structural Estimation of Behavioral Models: Discrete Choice Dynamic Programming Methods and Applications," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 4, pages 331-461, Elsevier.
    8. Jason R. Blevins & Wei Shi & Donald R. Haurin & Stephanie Moulton, 2020. "A Dynamic Discrete Choice Model Of Reverse Mortgage Borrower Behavior," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(4), pages 1437-1477, November.
    9. Elert, Niklas & Andersson, Fredrik W. & Wennberg, Karl, 2015. "The impact of entrepreneurship education in high school on long-term entrepreneurial performance," Journal of Economic Behavior & Organization, Elsevier, vol. 111(C), pages 209-223.
    10. Bruneel-Zupanc, Christophe Alain, 2021. "Discrete-Continuous Dynamic Choice Models: Identification and Conditional Choice Probability Estimation," TSE Working Papers 21-1185, Toulouse School of Economics (TSE).
    11. Victor Aguirregabiria, 2006. "Another Look at the Identification of Dynamic Discrete Decision Processes: With an Application to Retirement Behavior," 2006 Meeting Papers 169, Society for Economic Dynamics.
    12. Anmol Bhandari & Ellen R. McGrattan, 2017. "Sweat Equity in U.S. Private Business," Staff Report 560, Federal Reserve Bank of Minneapolis.
    13. George‐Levi Gayle & Limor Golan & Mehmet A. Soytas, 2018. "Estimation of dynastic life‐cycle discrete choice models," Quantitative Economics, Econometric Society, vol. 9(3), pages 1195-1241, November.
    14. Hu Yingyao & Shum Matthew & Tan Wei & Xiao Ruli, 2017. "A Simple Estimator for Dynamic Models with Serially Correlated Unobservables," Journal of Econometric Methods, De Gruyter, vol. 6(1), pages 1-16, January.
    15. Gayle, George-Levi & Golan, Limor & Soytas, Mehmet A., 2022. "What is the source of the intergenerational correlation in earnings?," Journal of Monetary Economics, Elsevier, vol. 129(C), pages 24-45.
    16. Hanming Fang & Yang Wang, 2015. "Estimating Dynamic Discrete Choice Models With Hyperbolic Discounting, With An Application To Mammography Decisions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(2), pages 565-596, May.
    17. Odran Bonnet & Alfred Galichon & Yu-Wei Hsieh & Keith O’Hara & Matt Shum, 2022. "Yogurts Choose Consumers? Estimation of Random-Utility Models via Two-Sided Matching [Unobserved Product Differentiation in Discrete-Choice Models: Estimating Price Elasticities and Welfare Effects," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(6), pages 3085-3114.
    18. Hu, Yingyao, 2017. "The Econometrics of Unobservables -- Latent Variable and Measurement Error Models and Their Applications in Empirical Industrial Organization and Labor Economics [The Econometrics of Unobservables]," Economics Working Paper Archive 64578, The Johns Hopkins University,Department of Economics, revised 2021.
    19. Vladasel, Theodor & Lindquist, Matthew J. & Sol, Joeri & van Praag, Mirjam, 2021. "On the origins of entrepreneurship: Evidence from sibling correlations," Journal of Business Venturing, Elsevier, vol. 36(5).
    20. Kasahara, Hiroyuki & Shimotsu, Katsumi, 2008. "Pseudo-likelihood estimation and bootstrap inference for structural discrete Markov decision models," Journal of Econometrics, Elsevier, vol. 146(1), pages 92-106, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:iecrev:v:61:y:2020:i:2:p:617-681. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/deupaus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.