Firm Formation with Complementarities: The Role of the Entrepreneur

Christian Roessler and Philipp Koellinger
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Christian Roessler: Rice University, and University of Queensland, Australia

No 09-003/3, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We model entrepreneurship and the emergence of firms as a result of simultaneous bidding for labor services among heterogeneousagents. Unique to our approach is that occupational choices, jobmatching and organizational forms are determined simultaneously, sothat the opportunity costs of entrepreneurs are accounted for. Wefind that (1) individuals who are relatively unmanageable become entrepreneurs; (2) entrepreneurs compete against each other and createvalue by building efficient organizations and offering potentially verywell paid jobs for others; and (3) entry of an additional entrepreneurtypically reduces some individual wages, but always raises the averagewage and depresses the average incomes of incumbent entrepreneurs- strictly so if the new firm partially imitates existing organizations.Our results shed a new light on the role of entrepreneurs in the economy and may be applied to explain low returns to self-employment.

Keywords: Entrepreneurship; job matching; occupational choice; firm formation; firm organization (search for similar items in EconPapers)
JEL-codes: D20 J24 J31 L23 L26 (search for similar items in EconPapers)
Date: 2009-01-13, Revised 2011-07-26
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20090003

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