Entrepreneurship and Financial Incentives of Return, Risk, and Skew

20 Pages Posted: 8 Mar 2016

See all articles by Peter Berkhout

Peter Berkhout

RIGO Research Institute

Joop Hartog

University of Amsterdam - Faculty of Economics and Business (FEB); Tinbergen Institute; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Mirjam van Praag

University of Amsterdam - Department of Economics; Copenhagen Business School; Tinbergen Institute; IZA Institute of Labor Economics

Date Written: March 2016

Abstract

We focus on the role of the opportunity cost in the choice for entrepreneurship in favor of wage employment, that is, the wages given up as an employee. We argue that just like outside observers, potential entrepreneurs will face great difficulty to predict their earnings from entrepreneurship. The focus on earnings forgone may help to solve the lack of robust empirical support for the effect of financial incentives on the decision to become an entrepreneur. We find, consistent with standard theory, that a higher mean, lower variance, and higher skew in the relevant wage distribution reduce the likelihood of entrepreneurship.

Suggested Citation

Berkhout, Peter and Hartog, Joop and van Praag, Mirjam, Entrepreneurship and Financial Incentives of Return, Risk, and Skew (March 2016). Entrepreneurship Theory and Practice, Vol. 40, Issue 2, pp. 249-268, 2016. Available at SSRN: https://ssrn.com/abstract=2744369 or http://dx.doi.org/10.1111/etap.12219

Peter Berkhout (Contact Author)

RIGO Research Institute ( email )

De Ruyter Kade 112 C
Amsterdam, 1011 AB
Netherlands

Joop Hartog

University of Amsterdam - Faculty of Economics and Business (FEB) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

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

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
0
Abstract Views
165
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information