Who becomes an entrepreneur? The role of ability, education, and sector choice

Montserrat Vilalta-Bufi, Aleksander Kucel () and Giovanni Giusti
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Aleksander Kucel: ESCSET, Universitat Pompeu Fabra
Giovanni Giusti: ESCSET, Universitat Pompeu Fabra

No 2018/381, UB School of Economics Working Papers from University of Barcelona School of Economics

Abstract: The classical occupational choice model does not explain the simultaneous existence of low and high ability entrepreneurs. In this paper, we study the decision to become an entrepreneur when individuals choose their education level and the economic sector where to operate. We distinguish two sectors: the knowledge and the traditional sector. The knowledge sector requires individuals to invest in education. Under this framework, two results are possible: one where only high ability individuals become entrepreneurs, and one with the coexistence of low and high ability entrepreneurs. This framework provides a rational explanation of the relationship between ability, education, and self-employment. Using PIAAC data, we test the empirical implications of the model. We find that most countries have an equilibrium with low and high ability entrepreneurs.

Keywords: Entrepreneurship; human capital entry barrier; occupational choice model; ability; sector choice. (search for similar items in EconPapers)
JEL-codes: J21 J24 L26 (search for similar items in EconPapers)
Pages: 73 pages
Date: 2018
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