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Keeping options open: What motivates entrepreneurs?

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  • Catherine, Sylvain

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.

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  • Catherine, Sylvain, 2022. "Keeping options open: What motivates entrepreneurs?," Journal of Financial Economics, Elsevier, vol. 144(1), pages 1-21.
    • Handle: RePEc:eee:jfinec:v:144:y:2022:i:1:p:1-21
    DOI: 10.1016/j.jfineco.2022.01.001
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    1. Toni M Whited, 2023. "Integrating Structural and Reduced-Form Methods in Empirical Finance," Journal of Financial Econometrics, Oxford University Press, vol. 21(3), pages 597-615.
    2. Richard Audoly, 2024. "Self-employment and labor market risks," IFS Working Papers W24/01, Institute for Fiscal Studies.
    3. Jinglin Jiang & Hongyu Xiang, 2024. "Leadership and Entrepreneurship: Evidence from a Chinese Household Survey," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 14(1), pages 1-2.
    4. Gendron-Carrier, Nicolas, 2023. "Prior Work Experience and Entrepreneurship: The Careers of Young Entrepreneurs," IZA Discussion Papers 16145, Institute of Labor Economics (IZA).
    5. Jonsson, Sara & Ouyang, Qinglin, 2023. "Effects of cultural origin on entrepreneurship," Journal of Economic Behavior & Organization, Elsevier, vol. 216(C), pages 308-319.

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    More about this item

    Keywords

    Entrepreneurship; Life-Cycle model; Structural estimation; Learning;
    All these keywords.

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • G3 - Financial Economics - - Corporate Finance and Governance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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