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The income return to entrepreneurship: theoretical model and outcomes for Swedish regions

Author

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  • Björn Hårsman

    (KTH Royal Institute of Technology)

  • Lars-Göran Mattsson

    (KTH Royal Institute of Technology)

  • Vardan Hovsepyan

    (KTH Royal Institute of Technology)

Abstract

This paper investigates the income return to entrepreneurship and wage employment by means of Lazear’s model of occupational choice. The paper has two major aims. The first is to develop a new theoretical framework for analyzing the income return to entrepreneurship by combining the Lazear model with the assumption that the skill profiles in a population are Fréchet-distributed. The second is to demonstrate that the resulting theoretical derivations can be used for a new type of regional analysis of the income return to entrepreneurship and wage employment. The empirical analysis is based on data for individuals with a Master of Science degree in Electrical Engineering. We compute their income return to self-employment and wage employment in three parts of Sweden: the Stockholm region, the combined Gothenburg and Malmö region, and the Rest of Sweden. The results show that the average return to self-employment is less than 5% in all regions and smaller in the Gothenburg and Malmö region than in the other two regions. The regional differences are explained by the differential supply curves and market values of entrepreneurial talent. The theoretical derivation of the income return to entrepreneurship is the main contribution of the paper. Another contribution is the derivation of regional supply curves for entrepreneurs.

Suggested Citation

  • Björn Hårsman & Lars-Göran Mattsson & Vardan Hovsepyan, 2018. "The income return to entrepreneurship: theoretical model and outcomes for Swedish regions," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 61(3), pages 479-498, November.
    • Handle: RePEc:spr:anresc:v:61:y:2018:i:3:d:10.1007_s00168-018-0883-4
    DOI: 10.1007/s00168-018-0883-4
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    Cited by:

    1. Hårsman, Björn & Mattsson, Lars-Göran, 2019. "Reconsidering the returns to entrepreneurship: Applying a modified version of Lazear’s occupational choice model," Working Paper Series in Economics and Institutions of Innovation 478, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    2. Vladimir Hlasny, 2021. "Parametric representation of the top of income distributions: Options, historical evidence, and model selection," Journal of Economic Surveys, Wiley Blackwell, vol. 35(4), pages 1217-1256, September.
    3. Björn Hårsman & Lars-Göran Mattsson, 2021. "Analyzing the returns to entrepreneurship by a modified Lazear model," Small Business Economics, Springer, vol. 57(4), pages 1875-1892, December.

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    More about this item

    JEL classification:

    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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