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The Old‐Boy Network and the Quality of Entrepreneurs

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  • Mehmet Bac
  • Eren Inci

Abstract

We study a model of network formation and start‐up financing with endogenous entrepreneurial type distribution. A hub firm admits members to its network based on signals about entrepreneurs' types. Network membership is observable, which allows lenders to offer different interest rates to network and stand‐alone entrepreneurs. We show that a network outcome can display a smaller number of high‐type entrepreneurs even though the network is neither nepotistic nor informationally disadvantaged. Although a welfare‐improving network can emerge as a technically stable or unstable equilibrium, one that decreases welfare is always formed by a technically unstable equilibrium. However, the adverse welfare effects of a network and its corresponding type configuration may persist because ex post high‐type entrepreneurs prefer to stay high type whereas those who wish to become high type may need some time to react.

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  • Mehmet Bac & Eren Inci, 2010. "The Old‐Boy Network and the Quality of Entrepreneurs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(4), pages 889-918, December.
    • Handle: RePEc:bla:jemstr:v:19:y:2010:i:4:p:889-918
    DOI: 10.1111/j.1530-9134.2010.00273.x
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    Cited by:

    1. Inci, Eren, 2013. "Occupational choice and the quality of entrepreneurs," Journal of Economic Behavior & Organization, Elsevier, vol. 92(C), pages 1-21.
    2. Peter-J. Jost, 2022. "Friend or foe? Co-opetition and entrepreneurial networking," Small Business Economics, Springer, vol. 59(3), pages 1043-1059, October.
    3. Somayeh Labafi & Mahdieh Jalalpoor, 2015. "Challenges of Women for Entering in to Old Boys' Network Case study: Iran Universities," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 5(4), pages 67-84, April.
    4. Eren Inci & Simon C. Parker, 2013. "Financing Entrepreneurship and the Old‐Boy Network," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(2), pages 232-258, June.

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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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