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Necessity and Opportunity Entrepreneurs through the Business Cycle

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  • Peter Thompson

    (Department of Economics, Florida International University)

Abstract

We construct a simple model of occupational choice among agents with differing abilities. The fraction of agents creating new businesses who are low ability rises during recessions. Thus, cohorts born during recessions are on average lower quality: their businesses yield lower initial earnings, grow more slowly, and are more likely to fail. We show that, because of their effects on the ability distribution of business founders, short-lived recessions can have long-term consequences for the quality of a cohort of firms.

Suggested Citation

  • Peter Thompson, 2011. "Necessity and Opportunity Entrepreneurs through the Business Cycle," Working Papers 1102, Florida International University, Department of Economics.
    • Handle: RePEc:fiu:wpaper:1102
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    File URL: http://casgroup.fiu.edu/pages/docs/3501/1303434101_11-02.pdf
    File Function: First version, 2011
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Bukstein Daniel & Gandelman Nestor, 2018. "Cohort, Age and Business Cycle Effects in Entrepreneurship in Latin America," Entrepreneurship Research Journal, De Gruyter, vol. 8(3), pages 1-13, July.
    2. Awaworyi Churchill, Sefa & Munyanyi, Musharavati Ephraim & Smyth, Russell & Trinh, Trong-Anh, 2021. "Early life shocks and entrepreneurship: Evidence from the Vietnam War," Journal of Business Research, Elsevier, vol. 124(C), pages 506-518.
    3. Nyoni, Thabani, 2018. "Switching from Job Seekers to Job Creators: Transmogrifying Necessity Entrepreneurs and Ratifying Opportunity Entrepreneurs in Zimbabwe," MPRA Paper 88840, University Library of Munich, Germany.
    4. Monika Mühlböck & Julia-Rita Warmuth & Marian Holienka & Bernhard Kittel, 2018. "Desperate entrepreneurs: no opportunities, no skills," International Entrepreneurship and Management Journal, Springer, vol. 14(4), pages 975-997, December.
    5. Kwon, Seok-Woo & Ruef, Martin, 2017. "The imprint of labor markets on entrepreneurial performance," Journal of Business Venturing, Elsevier, vol. 32(6), pages 611-626.
    6. Mihaela Vancea & Mireia Utzet, 2017. "Does Unemployment and Precarious Employment Lead to Increasing Entrepreneurial Intentions among Young People? Results from a Survey-Based Study in Spain," Central European Business Review, Prague University of Economics and Business, vol. 2017(2), pages 5-17.
    7. Nabil Abou Lebdi & Katrin Hussinger, 2016. "Startup Innovation during the Past Economic Crisis," DEM Discussion Paper Series 16-27, Department of Economics at the University of Luxembourg.

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    More about this item

    Keywords

    Entrepreneurship; self-employment; necessity; opportunity; recessions; firm-size distribution;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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