Abstract

http://ssrn.com/abstract=1733745
 
 

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Group Status and Entrepreneurship


Simon C. Parker


University of Western Ontario; Durham University - Department of Economics and Finance; Institute for the Study of Labor (IZA)

Mirjam Van Praag


University of Amsterdam - Department of Economics; Copenhagen Business School; Tinbergen Institute; Institute for the Study of Labor (IZA)

November 22, 2010

Journal of Economics & Management Strategy, Vol. 19, No. 4, pp. 919-945, 2010

Abstract:     
Do unfettered markets produce too many or too few entrepreneurs? Two seminal papers [Stiglitz and Weiss (1981) and de Meza and Webb (1987)] obtained ambiguous answers to this question based on different assumptions about the character of information asymmetries in credit markets. The present paper approaches the same question but using a labor market model in which income is determined by ability and individuals derive utility from income and occupational group status. Occupational group status for entrepreneurs depends on the average entrepreneurial income (due to ex post screening by banks), whereas status for wage employees depends on their own income and ability (due to ex ante screening by employers). Thus, individuals create externalities through their occupational choice. It is shown that there can be too many or too few entrepreneurs in equilibrium depending on the marginal returns to ability in entrepreneurship relative to paid employment; this enables the researcher to use independent evidence about occupational marginal returns to identify the relevant equilibrium likely to arise in practice, together with the likely appropriate policy responses. Based on this approach, we suggest that there may be too many (low ability) entrepreneurs in the USA.

Number of Pages in PDF File: 27

Accepted Paper Series





Date posted: January 10, 2011  

Suggested Citation

Parker, Simon C. and van Praag, Mirjam, Group Status and Entrepreneurship (November 22, 2010). Journal of Economics & Management Strategy, Vol. 19, No. 4, pp. 919-945, 2010. Available at SSRN: http://ssrn.com/abstract=1733745 or http://dx.doi.org/10.1111/j.1530-9134.2010.00280.x

Contact Information

Simon C. Parker (Contact Author)
University of Western Ontario ( email )
1151 Richmond Street
Suite 2
London, Ontario N6A 5B8
Canada
Durham University - Department of Economics and Finance ( email )
23/26 Old Elvet
Durham DH1 3HY
United Kingdom
+44 191 3747271 (Phone)
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
Mirjam Van Praag
University of Amsterdam - Department of Economics ( email )
Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4096 (Phone)
+31 20 525 4182 (Fax)
Copenhagen Business School ( email )
Kilevej 14A
Frederiksberg, 2000
Denmark
Tinbergen Institute
Gustav Mahlerlaan
Amsterdam
Netherlands
Institute for the Study of Labor (IZA)
Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany
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