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High-Technology Entrepreneurship in Silicon Valley Opportunities and Opportunity Costs

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Abstract

The economic expansion of the late 1990s undoubtedly created many opportunities for business creation in Silicon Valley, but the opportunity cost of starting a business was also high during this period because of the exceptionally tight labor market. A new measure of entrepreneurship derived from matching monthly files from the Current Population Survey (CPS) is used to provide the first test of the hypothesis that entrepreneurship rates were high in Silicon Valley during the "Roaring 90s." Unlike previous measures of firm births based on large, nationally representative datasets, the new measure captures business creation at the individual-owner level, includes both employer and non-employer business starts, and focuses on only hi-tech industries. Estimates from the matched CPS data indicate that hi-tech entrepreneurship rates were lower in Silicon Valley than the rest of the United States during the period from January 1996 to February 2000. Controlling for the large concentration of immigrants and highly-educated workforce does not change the conclusion. Examining the post-boom period, we find that entrepreneurship rates in Silicon Valley increased from the late 1990s to the early 2000s. In contrast, trends in entrepreneurship rates in the United States were constant over this period. Although Silicon Valley may be an entrepreneurial location overall, the extremely tight labor market of the late 1990s, especially in hi-tech industries, may have suppressed business creation during this period.

Suggested Citation

  • Robert Fairlie & Aaron Chatterji, 2008. "High-Technology Entrepreneurship in Silicon Valley Opportunities and Opportunity Costs," Working Papers 08-04, NET Institute.
  • Handle: RePEc:net:wpaper:0804
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    File URL: http://www.netinst.org/Fairlie_Chatterji_08-04.pdf
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    Cited by:

    1. Ashish Arora & Anand Nandkumar, 2011. "Cash-Out or Flameout! Opportunity Cost and Entrepreneurial Strategy: Theory, and Evidence from the Information Security Industry," Management Science, INFORMS, vol. 57(10), pages 1844-1860, October.

    More about this item

    Keywords

    entrepreneurship; Silicon Valley; hi-tech;

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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