Peer Effects and Entrepreneurship

Abstract:     
We examine whether the likelihood of entrepreneurial activity depends on the prior career experiences of an individual's co-workers. We argue that peers may increase an individual's likelihood of becoming an entrepreneur through two channels: by increasing the likelihood that an individual will perceive entrepreneurial opportunities, and by increasing his or her motivation to pursue those opportunities. Our analysis uses a unique panel dataset that allows us to track the career histories of individuals across firms. We find that an individual is more likely to become an entrepreneur if his or her co-workers have been entrepreneurs before, or if the co-workers' careers involved frequent movement between firms. Peer influences appear to be substitutes for other sources of entrepreneurial influence: the effects are strongest for those without exposure to entrepreneurship in their family of origin. These effects are robust to attempts to address concerns about unobserved heterogeneity bias.

Working Paper Series