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Entrepreneur or Manager: Who Runs the Firm?

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  • De Fraja, Gianni

Abstract

This paper studies the choice facing the owner of a valuable project. She can either run it herself or sell it to an outside investor and continue to work as the manager, receiving a performance related salary. Which is better? In other words, should an agent carry out a project herself or hire a principal? The main result the author establishes is that either can be preferred. The crucial difference lies in the relationship between the individual's effort and external economic conditions. The entrepreneur works harder when times are bad than when they are good, the manager does exactly the opposite. Copyright 1996 by Blackwell Publishing Ltd.

Suggested Citation

  • De Fraja, Gianni, 1996. "Entrepreneur or Manager: Who Runs the Firm?," Journal of Industrial Economics, Wiley Blackwell, vol. 44(1), pages 89-98, March.
    • Handle: RePEc:bla:jindec:v:44:y:1996:i:1:p:89-98
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    Cited by:

    1. Elena Kulchina, 2017. "Do foreign entrepreneurs benefit their firms as managers?," Strategic Management Journal, Wiley Blackwell, vol. 38(8), pages 1588-1607, August.
    2. Flores-Romero, Manuel G., 2004. "Survival of the Small Firm and the Entrepreneur under Demand and Effciency Uncertainty," Economic Research Papers 269594, University of Warwick - Department of Economics.
    3. Daniela Grieco, 2007. "The entrepreneurial decision: Theories, determinants and constraints," KITeS Working Papers 200, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised May 2007.
    4. Gregory T. Papanikos, 2004. "The Determinants of Employment Creation in Small Regional Firms," International Regional Science Review, , vol. 27(2), pages 187-204, April.
    5. Flores-Romero, Manuel G, 2004. "Survival Of The Small Firm And The Entrepreneur Under Demand And Efficiency Uncertainty," The Warwick Economics Research Paper Series (TWERPS) 700, University of Warwick, Department of Economics.
    6. Nobuyuki Harada & Kyoichi Kijima, 2005. "Consumption-Leisure Preference Structure: A New Explanation of the Evans-Jovanovic Results for Entrepreneurial Choice," Small Business Economics, Springer, vol. 24(4), pages 423-427, May.
    7. Helen Pushkarskaya & Michael Smithson & Xun Liu & Jane E. Joseph, 2010. "Neuroeconomics of Environmental Uncertainty and the Theory of the Firm," Chapters, in: Angela A. Stanton & Mellani Day & Isabell M. Welpe (ed.), Neuroeconomics and the Firm, chapter 1, Edward Elgar Publishing.

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