Does Prestige Matter More than Profits? Evidence from Entrepreneurial Choice

Mariassunta Giannetti and Andrei Simonov

No 4157, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Entrepreneurial choice; Social interactions; Peer effects; Social norms; Agglomeration economcs (search for similar items in EconPapers)
JEL-codes: J24 M13 R12 (search for similar items in EconPapers)
Date: 2003-12
New Economics Papers: this item is included in nep-ent and nep-geo
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Citations: View citations in EconPapers (3)

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