Firm Formation with Complementarities: The Role of the Entrepreneur
AbstractWe model entrepreneurship and the emergence of firms as a result of simultaneous bidding for labor services among heterogeneousagents. Unique to our approach is that occupational choices, jobmatching and organizational forms are determined simultaneously, sothat the opportunity costs of entrepreneurs are accounted for. Wefind that (1) individuals who are relatively unmanageable become entrepreneurs; (2) entrepreneurs compete against each other and createvalue by building efficient organizations and offering potentially verywell paid jobs for others; and (3) entry of an additional entrepreneurtypically reduces some individual wages, but always raises the averagewage and depresses the average incomes of incumbent entrepreneurs- strictly so if the new firm partially imitates existing organizations.Our results shed a new light on the role of entrepreneurs in the economy and may be applied to explain low returns to self-employment.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 09-003/3.
Date of creation: 13 Jan 2009
Date of revision: 26 Jul 2011
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Entrepreneurship; job matching; occupational choice; firm formation; firm organization;
Find related papers by JEL classification:
- L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- D20 - Microeconomics - - Production and Organizations - - - General
- L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-17 (All new papers)
- NEP-BEC-2009-01-17 (Business Economics)
- NEP-ENT-2009-01-17 (Entrepreneurship)
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