Keeping options open: What motivates entrepreneurs?

Sylvain Catherine

Journal of Financial Economics, 2022, vol. 144, issue 1, 1-21

Abstract: Using French administrative data on job-creating entrepreneurs, I estimate a life-cycle model in which risk-averse individuals can start businesses and return to paid employment. Then, I use the dynamic model to value the option of returning to the labor market in case of failure. For new entrepreneurs, this option is worth 6.4× the average net wage in the country, which represented 136,000€ in 2018. This option value is explained by the unobserved heterogeneity in entrepreneurial abilities and the random-walk component of productivity. Estimated unobserved benefits of entrepreneurship represent 38.6% of the average net wage pre-tax per year (some 15% of profits), or 8,250€ in 2018. Unobserved benefits add up to 90,700€ over the average entrepreneurial spell. Together, unobserved benefits and the option value of returning to paid employment explain 42% of firm creations.

Keywords: Entrepreneurship; Life-Cycle model; Structural estimation; Learning (search for similar items in EconPapers)
JEL-codes: D91 D92 G3 L26 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:144:y:2022:i:1:p:1-21

DOI: 10.1016/j.jfineco.2022.01.001

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