Opportunity Costs and Entrepreneurial Activity

Posted: 17 Nov 2009

See all articles by Raphael ('Raffi") H. Amit

Raphael ('Raffi") H. Amit

The Wharton School UPENN

Eitan Muller

affiliation not provided to SSRN

Iain M. Cockburn

Boston University Questrom School of Business; National Bureau of Economic Research (NBER)

Date Written: 1995

Abstract

Based on an analysis of a game-theoretic model developed by Amit, Glosten, and Muller in 1994, the following hypothesis is posited and investigated: entrepreneurs are more likely to undertake entrepreneurial activities when their opportunity costs are lower. Data were gathered from the Longitudinal 1988-1990 Labor Market Activity Survey of Canadian Workers of 352 individuals classified as "new entrepreneurs" - that is, they have moved from paid work to self-employment to the hiring of others. Findings indicate that paid workers who chose to become entrepreneurs earned significantly less as wage workers than those whose employment status did not change (i.e., who remained paid employees) during the three-year period. Further research is needed to determine causality. Are less capable workers starting their own businesses, thus accounting in part for high venture failure rates? Or are those who leave their previous work people whose entrepreneurial abilities and attitudes do not fit a corporate setting? This initial study does at least suggest that workers who have less to lose - i.e., lower opportunity costs - are those who become entrepreneurs. (SFL)

Keywords: Canadian Labor Market Activity Survey, Motivation, Career choices, Individual traits, Risk orientation, Salaried employment, Self-employment, Wage workers, Wages & salaries

Suggested Citation

Amit, Raphael H. and Muller, Eitan and Cockburn, Iain M., Opportunity Costs and Entrepreneurial Activity (1995). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN: https://ssrn.com/abstract=1504518

Raphael H. Amit (Contact Author)

The Wharton School UPENN ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104-6370
United States
215 898 7731 (Phone)

Eitan Muller

affiliation not provided to SSRN

Iain M. Cockburn

Boston University Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States
617-353-3775 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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