Firm Formation with Complementarities: The Role of the Entrepreneur

Tinbergen Institute Discussion Paper 09-003/3

37 Pages Posted: 1 Sep 2011

See all articles by Christian Roessler

Christian Roessler

Erasmus University Rotterdam (EUR); Brown University

Philipp Koellinger

Vrije Universiteit Amsterdam

Date Written: July 26, 2011

Abstract

We model entrepreneurship and the emergence of firms as a result of simultaneous bidding for labor services among heterogeneous agents. Unique to our approach is that occupational choices, job matching and organizational forms are determined simultaneously, so that the opportunity costs of entrepreneurs are accounted for. We find that individuals who are relatively unmanageable become entrepreneurs; entrepreneurs compete against each other and create value by building efficient organizations and offering potentially very well paid jobs for others; and entry of an additional entrepreneur typically reduces some individual wages, but always raises the average wage and depresses the average incomes of incumbent entrepreneurs - strictly so if the new firm partially imitates existing organizations. Our results shed a new light on the role of entrepreneurs in the economy and may be applied to explain low returns to self-employment.

Keywords: entrepreneurship, job matching, occupational choice, firm formation, firm organization

JEL Classification: L26, J24, J31, D20, L23

Suggested Citation

Roessler, Christian and Koellinger, Philipp, Firm Formation with Complementarities: The Role of the Entrepreneur (July 26, 2011). Tinbergen Institute Discussion Paper 09-003/3. Available at SSRN: https://ssrn.com/abstract=1920643 or http://dx.doi.org/10.2139/ssrn.1920643

Christian Roessler (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Brown University

Box 1860
Providence, RI 02912
United States

Philipp Koellinger

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

HOME PAGE: http://www.philipp-koellinger.com

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