Entrepreneurial Enterprises, Endogenous Ownership, and the Limits to Firm Size

Steven N Wiggins

Economic Inquiry, 1995, vol. 33, issue 1, 54-69

Abstract: This paper develops a simple model of entrepreneurial enterprises. The analysis differs from traditional work on entrepreneurship by analyzing why entrepreneurial activities are typically conducted in small firms owned by the entrepreneur. The author argues that ownership incentives are an advantage of small firms. When the probability of success of an economic activity becomes small, it becomes costly for large firms to commit to strong incentives and small worker-owned firms emerge. The paper discusses application of the theory to innovation, wild-cat oil exploration, restaurants and retail trade, professional practices, salesmen, and franchising. Copyright 1995 by Oxford University Press.

Date: 1995
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