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Firm Formation with Complementarities: The Role of the Entrepreneur

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Author Info
Christian Roessler () (Rice University, and University of Queensland, Australia)
Philipp Koellinger () (Erasmus University Rotterdam, The Netherlands)

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Abstract

We model the emergence of organization forms in a game between prospective entrepreneurs. Complementary roles arise endogenously in a way that admits a stable assignment of workers to firms. This contrasts with existing work on job matching, where stability typically requires workers to be substitutes. Our approach demonstrates that the labor market selection of entrepreneurs and their profit-maximizing choices lead to specific technologies in which certain workers are substitutes and others are complements. We give a simple characterization of equilibrium firm memberships and organizations. We show that payoffs in our non-cooperative solution lie in the core of the corresponding cooperative game, and can be obtained in a decentralized process that reduces information and planning requirements for the entrepreneur.

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Publisher Info
Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 09-003/3.

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Date of creation: 13 Jan 2009
Date of revision: 03 Jun 2009
Handle: RePEc:dgr:uvatin:20090003

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Related research
Keywords: Entrepreneurship; job matching; occupational choice; firm formation; firm organization;

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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
C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions

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  8. Dutta, Bhaskar & Masso, Jordi, 1997. "Stability of Matchings When Individuals Have Preferences over Colleagues," Journal of Economic Theory, Elsevier, vol. 75(2), pages 464-475, August. [Downloadable!] (restricted)
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  14. Sherwin Rosen, 1982. "Authority, Control, and the Distribution of Earnings," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 311-323, Autumn. [Downloadable!] (restricted)
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