IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/26377.html
   My bibliography  Save this paper

Defining Opportunity versus Necessity Entrepreneurship: Two Components of Business Creation

Author

Listed:
  • Robert W. Fairlie
  • Frank M. Fossen

Abstract

A proposed explanation for why business creation is often found to increase in recessions is that there are two components to entrepreneurship – “opportunity” and “necessity” – the latter of which is mostly counter-cyclical. Although there is some agreement on the conceptual distinction between these two factors driving entrepreneurship, there is little consensus in the literature on empirical definitions. The goal of this paper is to propose an operational definition of opportunity versus necessity entrepreneurship based on the entrepreneur’s prior work status (i.e. based on previous unemployment) that is straightforward, based on objective information, and empirically feasible using many large, nationally representative datasets. We then explore the validity of the definitions with theory and empirical evidence. Using datasets from the United States and Germany we find that 80-90 percent of entrepreneurs are opportunity entrepreneurs. Applying our proposed definitions, we document that opportunity entrepreneurship is generally pro-cyclical and necessity entrepreneurship is strongly counter-cyclical both at the national levels and across local economic conditions. We also find that opportunity vs. necessity entrepreneurship is associated with the creation of more growth-oriented businesses. The operational definitions of opportunity and necessity entrepreneurship proposed here may be useful for distinguishing between the two types of entrepreneurship in future research.

Suggested Citation

  • Robert W. Fairlie & Frank M. Fossen, 2019. "Defining Opportunity versus Necessity Entrepreneurship: Two Components of Business Creation," NBER Working Papers 26377, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:26377
    Note: LS PR
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w26377.pdf
    Download Restriction: Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:26377. 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: (). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.