Does Prestige Matter More than Profits? Evidence from Entrepreneurial Choices

44 Pages Posted: 12 Jan 2004

See all articles by Mariassunta Giannetti

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Andrei Simonov

Michigan State University - Eli Broad Graduate School of Management; Russian Presidential Academy of National Economy and Public Administration (RANEPA); Centre for Economic Policy Research (CEPR)

Date Written: December 2003

Abstract

This Paper investigates whether social norms play an important role in the decision to become an entrepreneur. We study whether the individual decision to become an entrepreneur or entrepreneurial income are affected by the decisions of other individuals living in the same municipality. To overcome the identification problems, we use very detailed Swedish data and exploit the large institutional changes that occurred in Sweden in the 1980s and early 1990s (the dissolution of the centralized wage-setting arrangements and the major tax reform in 1990-91), which create a quasi-natural experiment for analysing entrepreneurial choice. The results show that more individuals become entrepreneurs in municipalities where entrepreneurship is more widespread, even though entrepreneurial profits are lower. This suggests that social norms play an important role in the decision to become an entrepreneur. We also evaluate alternative explanations, such the existence of agglomeration economies, or knowledge spillovers. They do not, however, seem to find support in the data.

JEL Classification: J24, M13, R12

Suggested Citation

Giannetti, Mariassunta and Simonov, Andrei, Does Prestige Matter More than Profits? Evidence from Entrepreneurial Choices (December 2003). CEPR Discussion Paper No. 4157. Available at SSRN: https://ssrn.com/abstract=486961

Mariassunta Giannetti (Contact Author)

Stockholm School of Economics ( email )

P.O. Box 6501
Sveavagen 65
SE-113 83 Stockholm
Sweden
+46 8 736 9607 (Phone)
+46 8 312 327 (Fax)

HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Andrei Simonov

Michigan State University - Eli Broad Graduate School of Management ( email )

645 N. Shaw Lane, 321 Eppley Center
East Lansing, MI 48824-1122
United States

HOME PAGE: http://www.andreisimonov.com

Russian Presidential Academy of National Economy and Public Administration (RANEPA) ( email )

Vernadskogo Prospect 82
Moscow, 119571
Russia

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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