Experimentation and the Returns to Entrepreneurship

Manso, Gustavo

doi:10.2139/ssrn.2527034

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Experimentation and the Returns to Entrepreneurship

34 Pages Posted: 21 Nov 2014 Last revised: 1 Nov 2015

See all articles by Gustavo Manso

Gustavo Manso

University of California, Berkeley - Haas School of Business

Date Written: October 31, 2015

Abstract

Previous studies have argued that entrepreneurs earn less and bear more risk than salaried workers with otherwise similar characteristics. In a simple model of entrepreneurship, I show that estimates of mean and variance of returns to entrepreneurship used by these previous studies are biased, as they are based on cross-sectional data and fail to account for the option value of experimenting with new ideas. Using longitudinal data, I find patterns that are consistent with entrepreneurship as experimentation and returns to entrepreneurship that are more attractive than established by previous research.

Keywords: entrepreneurship, experimentation, real options

JEL Classification: M13, G31

Suggested Citation: Suggested Citation

Manso, Gustavo, Experimentation and the Returns to Entrepreneurship (October 31, 2015). Available at SSRN: https://ssrn.com/abstract=2527034 or http://dx.doi.org/10.2139/ssrn.2527034