Keeping Options Open: What Motivates Entrepreneurs?

55 Pages Posted: 21 Nov 2018 Last revised: 5 Feb 2019

See all articles by Sylvain Catherine

Sylvain Catherine

University of Pennsylvania - Finance Department

Date Written: February 1, 2019


Using French administrative data on job-creating entrepreneurs, I estimate a life-cycle model in which risk-averse individuals can start businesses and return to paid employment. I estimate that the unobserved benefits of entrepreneurship represent 6,100 pre-tax euros per year (some 15% of profits), which adds up to 67,000 euros over the average entrepreneurial spell. For new entrepreneurs, the option of returning to paid employment is worth 82,000 euros. The main source of option value is not the unobserved heterogeneity in entrepreneurial abilities but rather the random-walk component of productivity. Together, unobserved benefits and this option value explain 42% of firm creations.

Keywords: Entrepreneurship, Life-Cycle Model, Structural Estimation, Learning

JEL Classification: L26, G3, D91, D92

Suggested Citation

Catherine, Sylvain, Keeping Options Open: What Motivates Entrepreneurs? (February 1, 2019). Available at SSRN: or

Sylvain Catherine (Contact Author)

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

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