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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
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
Contact details of provider:
Web page: http://www.tinbergen.nl
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)
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.:
- Laussel, Didier & Le Breton, Michel, 1995. "A general equilibrium theory of firm formation based on individual unobservable skills," European Economic Review, Elsevier, vol. 39(7), pages 1303-1319, August.
- Sasaki, Hiroo & Toda, Manabu, 1996. "Two-Sided Matching Problems with Externalities," Journal of Economic Theory, Elsevier, vol. 70(1), pages 93-108, July.
- Farrell, Joseph & Scotchmer, Suzanne, 1986.
Department of Economics, Working Paper Series
qt49d211x4, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- José Alcalde Pérez & Antonio Romero-Medina & David Pérez-Castrillo, 1997.
"Hiring procedures to implement stable allocations,"
Working Papers. Serie AD
1997-10, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- John William Hatfield & Paul R. Milgrom, 2005.
"Matching with Contracts,"
American Economic Review,
American Economic Association, vol. 95(4), pages 913-935, September.
- Bryan Ellickson & Birgit Grodal & Suzanne Scotchmer & William R. Zame, 1999.
"Clubs and the Market,"
Econometric Society, vol. 67(5), pages 1185-1218, September.
- Bryan Ellickson & Birgit Grodal & Suzanne Scotchmer & William R. Zame, 1999. "Clubs and the Market," Discussion Papers 99-04, University of Copenhagen. Department of Economics.
- Bryan Ellickson & Birgit Grodal & Suzanne Scotchmer & William R Zame, 2003. "Clubs and the Market," Levine's Working Paper Archive 618897000000000754, David K. Levine.
- 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.
- Dutta, B. & Masso, J., 1996. "Stability of Matchings when Individuals Have Preferences Over Colleagues," UFAE and IAE Working Papers 325.96, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Patrick Legros & Andrew Newman, 1996.
"Wealth effects, distribution, and the theory of organization,"
ULB Institutional Repository
2013/7036, ULB -- Universite Libre de Bruxelles.
- Legros, Patrick & Newman, Andrew F., 1996. "Wealth Effects, Distribution, and the Theory of Organization," Journal of Economic Theory, Elsevier, vol. 70(2), pages 312-341, August.
- Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-48, August.
- Roth, Alvin E, 1984. "Stability and Polarization of Interests in Job Matching," Econometrica, Econometric Society, vol. 52(1), pages 47-57, January.
- Kelso, Alexander S, Jr & Crawford, Vincent P, 1982. "Job Matching, Coalition Formation, and Gross Substitutes," Econometrica, Econometric Society, vol. 50(6), pages 1483-1504, November.
- Derks, Jean J M & Gilles, Robert P, 1995. "Hierarchical Organization Structures and Constraints on Coalition Formation," International Journal of Game Theory, Springer, vol. 24(2), pages 147-63.
- Katerina Sherstyuk, 1999. "Multisided matching games with complementarities," International Journal of Game Theory, Springer, vol. 28(4), pages 489-509.
- Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August.
- William R. Zame, 2007.
"Incentives, Contracts, and Markets: A General Equilibrium Theory of Firms,"
Econometric Society, vol. 75(5), pages 1453-1500, 09.
- William R. Zame, 2005. "Incentives, Contracts And Markets: A General Equilibrium Theory Of Firms," UCLA Economics Working Papers 843, UCLA Department of Economics.
- Crawford, Vincent P & Knoer, Elsie Marie, 1981. "Job Matching with Heterogeneous Firms and Workers," Econometrica, Econometric Society, vol. 49(2), pages 437-50, March.
- Martinez, Ruth & Masso, Jordi & Neme, Alejandro & Oviedo, Jorge, 2000. "Single Agents and the Set of Many-to-One Stable Matchings," Journal of Economic Theory, Elsevier, vol. 91(1), pages 91-105, March.
- Sotomayor, Marilda, 2004. "Implementation in the many-to-many matching market," Games and Economic Behavior, Elsevier, vol. 46(1), pages 199-212, January.
- Philipp Koellinger & Matthijs Loos & Patrick Groenen & A. Thurik & Fernando Rivadeneira & Frank Rooij & André Uitterlinden & Albert Hofman, 2010. "Genome-wide association studies in economics and entrepreneurship research: promises and limitations," Small Business Economics, Springer, vol. 35(1), pages 1-18, July.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Antoine Maartens (+31 626 - 160 892)).
If references are entirely missing, you can add them using this form.