Perceptions, Expectations, and Entrepreneurship: The Role of Extreme Events

24 Pages Posted: 9 Jan 2011 Last revised: 21 Aug 2012

See all articles by Tilman Brück

Tilman Brück

IGZ - Leibniz Institute of Vegetable and Ornamental Crops; ISDC - International Security and Development Center; IZA Institute of Labor Economics

Fernanda Llussá

New University of Lisbon

José Tavares

Nova School of Business and Economics - Universidade Nova de Lisboa ; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: December 1, 2010

Abstract

We provide, for the first time, comparative evidence of the impact of various types of extreme events - natural disasters, terrorism, and violent conflicts - on the perceptions of entrepreneurs concerning some key entrepreneurial issues - such as fear of failure in starting a business venture, whether individuals expect that good opportunities are likely to emerge in the next six months, and the expected level of competition stemming from creating new ventures. The occurrence of extreme events is likely to be exogenous to the perceptions affecting it so that we can identify a causal link from events to entrepreneurs and their perceptions. Using individual-level data from 43 countries from the period 2002 to 2005, we find that neither indicator of the intensity of extreme events has a significant impact on entrepreneurial activity, when country characteristics are not controlled for. Once invariant country characteristics are taken into account, we find that Terrorist Attacks have a positive and significant impact on business creation, Natural Disasters have a positive and negative impact on entrepreneurial activity, and Violent Conflict has no significant effect. These results are consistent with differential impacts of extreme events on perception variables such as Fear of Failure, Expected Business Opportunities, and Expected Level of Competition. Our results suggest that extreme events, while costly at the aggregate level, may induce a positive response in terms of entrepreneurial activity in specific circumstances. There is hence scope for entrepreneurs, and policies supporting them, to create growth from the ruins of extreme events.

Keywords: Perceptions, expectations, entrepreneurship, extreme events

JEL Classification: D84, D22, M13, L26, O12

Suggested Citation

Brück, Tilman and Llussá, Fernanda and Tavares, José, Perceptions, Expectations, and Entrepreneurship: The Role of Extreme Events (December 1, 2010). DIW Berlin Discussion Paper No. 1093. Available at SSRN: https://ssrn.com/abstract=1736405 or http://dx.doi.org/10.2139/ssrn.1736405

Tilman Brück (Contact Author)

IGZ - Leibniz Institute of Vegetable and Ornamental Crops ( email )

Theodor-Echtermeyer-Str. 1
Grossbeeren, 14979
Germany

HOME PAGE: http://www.igzev.de

ISDC - International Security and Development Center ( email )

Friedrichstr. 88
Berlin, 10117
Germany

HOME PAGE: http://www.isd-center.org

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Fernanda Llussá

New University of Lisbon ( email )

1099-085 Lisboa, 1099-085
Portugal

José Tavares

Nova School of Business and Economics - Universidade Nova de Lisboa ( email )

Campus de Carcavelos
Rua da Holanda, 1
Lisboa, 2775-405
Portugal
+351 21 380 1669 (Phone)
+351 21 388 9073 (Fax)

HOME PAGE: http://josetavares.pt

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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