 Group Status and EntrepreneurshipSimon Parker () and Mirjam Praag Journal of Economics & Management Strategy, 2010, vol. 19, issue 4, 919-945 Abstract: Do unfettered markets produce too many or too few entrepreneurs? Two seminal papers [Stiglitz and Weiss (1981) and de Meza and Webb (1987)] obtained ambiguous answers to this question based on different assumptions about the character of information asymmetries in credit markets. The present paper approaches the same question but using a labor market model in which income is determined by ability and individuals derive utility from income and occupational group status. Occupational group status for entrepreneurs depends on the average entrepreneurial income (due to ex post screening by banks), whereas status for wage employees depends on their own income and ability (due to ex ante screening by employers). Thus, individuals create externalities through their occupational choice. It is shown that there can be too many or too few entrepreneurs in equilibrium depending on the marginal returns to ability in entrepreneurship relative to paid employment; this enables the researcher to use independent evidence about occupational marginal returns to identify the relevant equilibrium likely to arise in practice, together with the likely appropriate policy responses. Based on this approach, we suggest that there may be too many (low ability) entrepreneurs in the USA. Date: 2010 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:jemstr:v:19:y:2010:i:4:p:919-945 Ordering information: This journal article can be ordered from Access Statistics for this article More articles in Journal of Economics & Management Strategy from Wiley Blackwell |
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