A Real Options Model of Stepwise Entry into Self-Employment

Karl Wennberg (), Timothy Folta and Frédéric Delmar

The Office of Advocacy Small Business Working Papers from U.S. Small Business Administration, Office of Advocacy

Abstract: This paper tests a real options model of stepwise entrepreneurial entry. We distinguish between part time and full time entry among the self employed in Swedish knowledge intensive industries. Two multinomial logit models tests the entry from employment to part- or full time entry in 1998, and to subsequent full time entry in 1999. The empirical evidence indicates the need to distinguish between part time and full time entry, something overlooked in earlier research. We find strong support for our notion that entrepreneurs used part time entry as a strategy to test the value of their conceived business opportunity without risking their full income. However, our hypothesis that entrepreneurs use a real options heuristic shaped by the uncertainty and the irreversibility of entry received only mixed support.

Pages: 13 pages
Date: 2007
New Economics Papers: this item is included in nep-bec and nep-ent
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