Are There Too Many Entrepeneurs? A Model of Client-Based Entrepreneurship
Client relationships create value, which employees may try to wrest from their employers by setting up their own firms. Firms counter by inducing workers to sign contracts that prohibit them from competing or soliciting former clients in the event of termination of employment. Society trades off higher effort by self employed workers against the cost of establishing redundant businesses, and local governments compete to attract clients. If clients, firms, and workers can renegotiate restrictive employment contracts and make compensating transfers, the socially optimal level of entrepreneurship will be achieved regardless of government policies regarding enforcement of these contracts. If workers cannot finance transfers to firms, however, firms and workers will sign contracts that are too restrictive and produce too little entrepreneurship, and governments can increase welfare by limiting enforcement of these contracts. With or without liquidity constraints, more entrepreneurial locations will attract more clients and have higher employment and output.
|Date of creation:||01 Apr 2003|
|Date of revision:|
|Contact details of provider:|| Postal: Boalt Hall, Berkeley, CA 94720|
Fax: (510) 642-3767
Web page: http://www.escholarship.org/repec/blewp/
More information through EDIRC
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.:
- Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
When requesting a correction, please mention this item's handle: RePEc:cdl:oplwec:qt3gm7v86m. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lisa Schiff)
If references are entirely missing, you can add them using this form.