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

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Author Info
Simon C. Parker (Durham University and IZA Bonn)

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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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File URL: ftp://repec.iza.org/RePEc/Discussionpaper/dp2071.pdf
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Publisher 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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Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
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Related research
Keywords: entrepreneurship occupational choice firm size

Find related papers by JEL classification:
J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
J62 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Job, Occupational and Intergenerational Mobility; Promotion

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References listed on IDEAS
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.:
  1. Boden, Richard Jr., 1996. "Gender and self-employment selection: An empirical assessment," The Journal of Socio-Economics, Elsevier, vol. 25(6), pages 671-682. [Downloadable!] (restricted)
  2. 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, vol. 48(1), pages 29-36, May. [Downloadable!] (restricted)
  3. Van Praag, C Mirjam & Van Ophem, Hans, 1995. "Determinants of Willingness and Opportunity to Start as an Entrepreneur," Kyklos, Blackwell Publishing, vol. 48(4), pages 513-40.
  4. Ghatak, Maitreesh & Morelli, Massimo & Sjostrom, Tomas, 2001. "Occupational Choice and Dynamic Incentives," Review of Economic Studies, Blackwell Publishing, vol. 68(4), pages 781-810, October.
  5. Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 75(4), pages 850-55, September. [Downloadable!] (restricted)
  6. Wagner, Joachim, 2004. "Nascent Entrepreneurs," IZA Discussion Papers 1293, Institute for the Study of Labor (IZA). [Downloadable!]
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