Opportunity Versus Necessity Entrepreneurship: Two Components of Business Creation

Posted: 18 Jan 2018

See all articles by Robert W. Fairlie

Robert W. Fairlie

University of California, Los Angeles (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: January 15, 2018

Abstract

A common finding in the entrepreneurship literature is that business creation increases in recessions. This counter-cyclical pattern is examined 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. We propose 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 economic model of entrepreneurship. Using this definition we document that “opportunity” entrepreneurship is pro-cyclical and “necessity” entrepreneurship is counter-cyclical. 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.

Keywords: entrepreneurship, opportunity, necessity, business cycle, self-employment, business creation

JEL Classification: L26

Suggested Citation

Fairlie, Robert W. and Fossen, Frank M., Opportunity Versus Necessity Entrepreneurship: Two Components of Business Creation (January 15, 2018). Available at SSRN: https://ssrn.com/abstract=3102695

Robert W. Fairlie (Contact Author)

University of California, Los Angeles (UCLA) ( email )

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National Bureau of Economic Research ( email )

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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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Germany

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