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Necessity and Opportunity Entrepreneurs through the Business Cycle

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  • Peter Thompson

    ()
    (Department of Economics, Florida International University)

Abstract

We construct a simple model of occupational choice among agents with differing abilities. The fraction of agents creating new businesses who are low ability rises during recessions. Thus, cohorts born during recessions are on average lower quality: their businesses yield lower initial earnings, grow more slowly, and are more likely to fail. We show that, because of their effects on the ability distribution of business founders, short-lived recessions can have long-term consequences for the quality of a cohort of firms.

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File URL: http://casgroup.fiu.edu/pages/docs/3501/1303434101_11-02.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by Florida International University, Department of Economics in its series Working Papers with number 1102.

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Length: 27 pages
Date of creation: Apr 2011
Date of revision:
Handle: RePEc:fiu:wpaper:1102

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Postal: Miami, FL 33199
Phone: (305) 348-2316
Fax: (305) 348-1524
Web page: http://casgroup.fiu.edu/Economics/
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Related research

Keywords: Entrepreneurship; self-employment; necessity; opportunity; recessions; firm-size distribution;

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References

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  1. Marco Caliendo & Alexander S. Kritikos, 2009. ""I Want to, But I also Need to": Start-Ups Resulting from Opportunity and Necessity," Discussion Papers of DIW Berlin 966, DIW Berlin, German Institute for Economic Research.
  2. Blau, David M, 1987. "A Time-Series Analysis of Self-employment in the United State," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 445-67, June.
  3. Thomas ├ůstebro & Jing Chen & Peter Thompson, 2011. "Stars and Misfits: Self-Employment and Labor Market Frictions," Management Science, INFORMS, vol. 57(11), pages 1999-2017, November.
  4. Bates, Timothy, 1990. "Entrepreneur Human Capital Inputs and Small Business Longevity," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 551-59, November.
  5. Joern H. Block & Marcus Wagner, 2010. "Necessity and Opportunity Entrepreneurs in Germany: Characteristics and Earning s Differentials," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 62(2), pages 154-174, April.
  6. 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.
  7. Bruhn, Miriam, 2008. "License to sell : the effect of business registration reform on entrepreneurial activity in Mexico," Policy Research Working Paper Series 4538, The World Bank.
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