Resolving the entrepreneurship puzzle: Applying Fréchet distributions to Lazear’s occupational choice model

Björn Hårsman () and Lars-Göran Mattsson
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Björn Hårsman: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, Postal: SE-100 44 Stockholm, Sweden

No 458, Working Paper Series in Economics and Institutions of Innovation from Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

Abstract: The paper analyzes the selection into entrepreneurship. We show that Lazear’s (2004, 2005) model of occupational choice between entrepreneurship and wage employment is compatible with a lower average income for entrepreneurs than for age ployed. The key assumption behind this result is that the skill profiles in a population follow a Fréchet distribution. Thus, under this skill distribution, there is no “returns-to-entrepreneurship puzzle”. Using individual-based data from the Swedish employment register for 2004-8, we investigate empirical implications of our specification of the Lazear model. The results show that our assumption is reasonably well supported.

Keywords: entrepreneurship; occupational choice; self-owning; skill distribution; Fréchet distribution; entrepreneurship puzzle (search for similar items in EconPapers)
JEL-codes: J24 J30 L26 M13 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2017-07-07, Revised 2018-02-22
New Economics Papers: this item is included in nep-ent, nep-eur, nep-lma and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:cesisp:0458

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