Entrepreneurs and Cities: Complexity, Thickness, and Balance

Abstract:     
It is well-established that the thickness of large cities' markets can enhance entrepreneurial activity (Vernon (1960)). It has been more recently established that because they carry out so many different tasks, a balance of skills may be beneficial to entrepreneurs (Lazear (2004, 2005)). This paper unifies these approaches to agglomeration and entrepreneurship. It breaks from both by focusing directly on the timeliness of entrepreneurial activity.

The paper's model of multidimensional task completion generates several interesting results. First, agglomeration economies arising from market thickness are reflected in shorter completion times. Second, complex projects that are infeasible in small cities may be feasible in large cities, where adaptation costs and completion times are lower. Third, it may be possible for less balanced entrepreneurs to manage successfully in large cities by substituting local market thickness for a balance of skills. Fourth, the Lazear result on the balance of entrepreneurs is shown to be related to Jacobs‟ (1969) classic result on urban diversity (city balance). Both are special cases of a more general sort of balance.

JEL Classification: O4

working papers series