Opportunity versus Necessity Entrepreneurship: Two Components of Business Creation

Stanford Institute for Economic Policy Research Discussion Paper No. 17-014

46 Pages Posted: 1 Aug 2017

See all articles by Robert W. Fairlie

Robert W. Fairlie

UCLA; National Bureau of Economic Research

Frank M. Fossen

University of Nevada, Reno; IZA Institute of Labor Economics

Multiple version iconThere are 6 versions of this paper

Date Written: April 27, 2017

Abstract

A common and seemingly paradoxical finding in the entrepreneurship literature is that business creation increases in recessions. We investigate this countercyclical pattern by separating business creation into two components: “opportunity” and “necessity” entrepreneurship. Although there is general agreement in the previous literature on the conceptual distinction between these two factors driving entrepreneurship, there are many challenges to creating a definition that is both objective and empirically feasible. The goal of this paper is to create an operational definition of opportunity versus necessity entrepreneurship using readily available nationally representative data. We create a distinction between the two types of entrepreneurship based on the entrepreneur’s prior work status that is consistent with the standard theoretical model of entrepreneurship. We document that “opportunity” entrepreneurship is pro-cyclical and “necessity” entrepreneurship is countercyclical. We also find that “opportunity” vs. “necessity” entrepreneurship is associated with the creation of more growth-oriented businesses. The operational distinction proposed here may be useful for future research in entrepreneurship.

Suggested Citation

Fairlie, Robert W. and Fossen, Frank M., Opportunity versus Necessity Entrepreneurship: Two Components of Business Creation (April 27, 2017). Stanford Institute for Economic Policy Research Discussion Paper No. 17-014, Available at SSRN: https://ssrn.com/abstract=3010267 or http://dx.doi.org/10.2139/ssrn.3010267

Robert W. Fairlie (Contact Author)

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Frank M. Fossen

University of Nevada, Reno ( email )

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HOME PAGE: http://business.unr.edu/faculty/ffossen/

IZA Institute of Labor Economics

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