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The Value of Entrepreneurial Failures: Task Allocation and Career Concerns

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Abstract

The task assignment that maximizes present expected output is not necessarily the most informative about an agent’s comparative advantage at different tasks. En- trepreneurs are free to choose their task assignment—workers in firms are not. When labor market frictions are low, any surplus generated by a more informative task as- signment is captured by the worker, and firms maximize present expected output in their task assignment. Hence, agents may choose entrepreneurship to learn their comparative advantage. The opposite holds when labor market frictions are large. The model establishes a causal relation between the degree of labor market frictions, the value of entrepreneurial failures, the level of entrepreneurial activity, the degree of firms’ short-termism, and the rate of within-firm talent discovery. The theoretical correlations between these variables are consistent with the evidence available for the US and continental Europe.

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  • Canidio, Andrea, 2016. "The Value of Entrepreneurial Failures: Task Allocation and Career Concerns," CEPR Discussion Papers 11295, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11295
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    Cited by:

    1. Andrea Canidio & Patrick Legros, 2023. "Task Discretion, Labor-market Frictions, and Entrepreneurship†," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 39(2), pages 420-455.
    2. Schumacher Heiner & Gerling Kerstin & Kowalik Michal, 2015. "Entrepreneurial Risk Choice and Credit Market Equilibria," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(3), pages 1455-1480, July.
    3. Thomas Hellmann & Veikko Thiele, 2019. "Fostering Entrepreneurship: Promoting Founding or Funding?," Management Science, INFORMS, vol. 67(6), pages 2502-2521, June.
    4. Canidio, Andrea, 2019. "Task Discretion, Labor Market Frictions and Entrepreneurship," CEPR Discussion Papers 13954, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    entrepreneurship; Entrepreneurial failures; Organizational choice; Learning; Task allocation; Career concerns;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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