A Selection-Based Theory of the Transition from Employment to Entrepreneurship: The Role of Employer Size

17 Pages Posted: 25 Apr 2006

See all articles by Simon C. Parker

Simon C. Parker

University of Western Ontario; Durham University - Department of Economics and Finance; IZA Institute of Labor Economics

Date Written: April 2006

Abstract

A simple occupational choice model is used to predict that entrepreneurs who found new firms are more likely to work for small than for large firms prior to start-up. The mechanism underlying the result is heterogeneous risk aversion. The model also predicts a positive association between new firm formation and previous self-employment experience. These predictions accord with previous empirical findings, but notably self-selection rather than productivity effects can explain them.

Keywords: entrepreneurship, occupational choice, firm size

JEL Classification: J21, J23, J62

Suggested Citation

Parker, Simon C., A Selection-Based Theory of the Transition from Employment to Entrepreneurship: The Role of Employer Size (April 2006). IZA Discussion Paper No. 2071. Available at SSRN: https://ssrn.com/abstract=898566

Simon C. Parker (Contact Author)

University of Western Ontario ( email )

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Durham University - Department of Economics and Finance ( email )

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IZA Institute of Labor Economics

P.O. Box 7240
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Germany

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