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Perceptions, Expectations, and Entrepreneurship: The Role of Extreme Events

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  • Tilman Brück
  • Fernanda Llussá
  • José Tavares

Abstract

We provide, for the first time, comparative evidence of the impact of various types of extreme events - natural disasters, terrorism, and violent conflicts - on the perceptions of entrepreneurs concerning some key entrepreneurial issues - such as fear of failure in starting a business venture, whether individuals expect that good opportunities are likely to emerge in the next six months, and the expected level of competition stemming from creating new ventures. The occurrence of extreme events is likely to be exogenous to the perceptions affecting it so that we can identify a causal link from events to entrepreneurs and their perceptions. Using individual-level data from 43 countries from the period 2002 to 2005, we find that neither indicator of the intensity of extreme events has a significant impact on entrepreneurial activity, when country characteristics are not controlled for. Once invariant country characteristics are taken into account, we find that Terrorist Attacks have a positive and significant impact on business creation, Natural Disasters have a positive and negative impact on entrepreneurial activity, and Violent Conflict has no significant effect. These results are consistent with differential impacts of extreme events on perception variables such as Fear of Failure, Expected Business Opportunities, and Expected Level of Competition. Our results suggest that extreme events, while costly at the aggregate level, may induce a positive response in terms of entrepreneurial activity in specific circumstances. There is hence scope for entrepreneurs, and policies supporting them, to create growth from the ruins of extreme events.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.366051.de/dp1093.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1093.

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Length: 22 p.
Date of creation: 2010
Date of revision:
Handle: RePEc:diw:diwwpp:dp1093

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Keywords: Perceptions; expectations; entrepreneurship; extreme events;

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References

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  1. Rachida Justo & Cristina Cruz & Julio Orlando De Castro & Alicia Coduras, 2006. "Entrepreneurs´ perceptions of success: examining differences across gender and family status," Working Papers Economia wp06-07, Instituto de Empresa, Area of Economic Environment.
  2. Bozzoli, Carlos & Brück, Tilman & Muhumuza, Tony, 2011. "Does war influence individual expectations?," Economics Letters, Elsevier, vol. 113(3), pages 288-291.
  3. Bircan, Cagatay & Brück, Tilman & Vothknecht, Marc, 2010. "Violent Conflict and Inequality," IZA Discussion Papers 4990, Institute for the Study of Labor (IZA).
  4. Carlos Bozzoli & Tilman Bruck & Simon Sottsas, 2010. "A Survey Of The Global Economic Costs Of Conflict," Defence and Peace Economics, Taylor and Francis Journals, vol. 21(2), pages 165-176.
  5. Bennett, John & Estrin, Saul, 2007. "Informality as a Stepping Stone: Entrepreneurial Entry in a Developing Economy," IZA Discussion Papers 2950, Institute for the Study of Labor (IZA).
  6. Maarten Voors & Eleonora Nillesen & Philip Verwimp & Erwin Bulte & Robert Lensink & Daan van Soest, 2010. "Does Conflict affect Preferences? Results from Field Experiments in Burundi," HiCN Working Papers 71, Households in Conflict Network.
  7. Carlos Bozzoli & Tilman Brück & Nina Wald, 2010. "Self-Employment and Conflict in Colombia," HiCN Working Papers 82, Households in Conflict Network.
  8. Llussá, Fernanda & Tavares, José, 2007. "Economics and Terrorism: What We Know, What We Should Know and the Data We Need," CEPR Discussion Papers 6509, C.E.P.R. Discussion Papers.
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Cited by:
  1. Michael Brzoska & Raphael Bossong & Eric van Um, 2011. "Security Economics in the European Context: Implications of the EUSECON Project," Economics of Security Working Paper Series 58, DIW Berlin, German Institute for Economic Research.

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