Entrepreneurship in Equilibrium

David Scharfstein and Denis Gromb

No 3652, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper compares the financing of new ventures in start-ups (entrepreneurship) and in established firms (intrapreneurship). Intrapreneurship allows established firms to use information on failed intrapreneurs to redeploy them into other jobs. Instead, failed entrepreneurs must seek other jobs in an imperfectly informed external labour market. While this is ex-post inefficient, it provides entrepreneurs with high-powered incentives ex ante. We show that two types of equilibria can arise (and sometimes coexist). In a low (high) entrepreneurship equilibrium, the market for failed entrepreneurs is thin (deep). Internal (external) labour markets are thus particularly valuable, which favours intrapreneurship (entrepreneurship). We also characterize conditions under which there can be too little or too much entrepreneurial activity in equilibrium.

Keywords: entrepreneurship; Venture capital; Incentives (search for similar items in EconPapers)
JEL-codes: D23 G24 G32 G34 M13 (search for similar items in EconPapers)
Date: 2002-10
New Economics Papers: this item is included in nep-cfn, nep-ent and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (44)

Downloads: (external link)
https://cepr.org/publications/DP3652 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Entrepreneurship in Equilibrium (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:3652

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP3652

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().