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A Selection-Based Theory of the Transition from Employment to Entrepreneurship: The Role of Employer Size

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  • Parker, Simon C.

    ()
    (Western University, Canada)

Abstract

A simple occupational choice model is used to predict that entrepreneurs who found new firms are more likely to work for small than for large firms prior to start-up. The mechanism underlying the result is heterogeneous risk aversion. The model also predicts a positive association between new firm formation and previous self-employment experience. These predictions accord with previous empirical findings, but notably self-selection rather than productivity effects can explain them.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2071.

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Length: 17 pages
Date of creation: Apr 2006
Date of revision:
Handle: RePEc:iza:izadps:dp2071

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Keywords: entrepreneurship; occupational choice; firm size;

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  1. Parker,Simon C., 2006. "The Economics of Self-Employment and Entrepreneurship," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521030632.
  2. Van Praag, C Mirjam & Van Ophem, Hans, 1995. "Determinants of Willingness and Opportunity to Start as an Entrepreneur," Kyklos, Wiley Blackwell, Wiley Blackwell, vol. 48(4), pages 513-40.
  3. Ghatak, Maitreesh & Morelli, Massimo & Sjostrom, Tomas, 2001. "Occupational Choice and Dynamic Incentives," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 68(4), pages 781-810, October.
  4. Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, American Economic Association, vol. 75(4), pages 850-55, September.
  5. Wagner, Joachim, 2004. "Nascent Entrepreneurs," IZA Discussion Papers 1293, Institute for the Study of Labor (IZA).
  6. Cramer, J. S. & Hartog, J. & Jonker, N. & Van Praag, C. M., 2002. "Low risk aversion encourages the choice for entrepreneurship: an empirical test of a truism," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 48(1), pages 29-36, May.
  7. Boden, Richard Jr., 1996. "Gender and self-employment selection: An empirical assessment," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, Elsevier, vol. 25(6), pages 671-682.
  8. Ghatak, Maitreesh, 1999. "Group lending, local information and peer selection," Journal of Development Economics, Elsevier, Elsevier, vol. 60(1), pages 27-50, October.
  9. Ekelund, Jesper & Johansson, Edvard & Jarvelin, Marjo-Riitta & Lichtermann, Dirk, 2005. "Self-employment and risk aversion--evidence from psychological test data," Labour Economics, Elsevier, Elsevier, vol. 12(5), pages 649-659, October.
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