Working Paper: NBER ID: w9109
Authors: Edward P. Lazear
Abstract: The theory proposed below is that entrepreneurs are jacks-of-all-trades who may not excel in any one skill, but are competent in many. A coherent model of the choice to become an entrepreneur is presented. The primary implication is that individuals with balanced skills should be more likely than others to become entrepreneurs. The model provides implications for the proportion of entrepreneurs by occupation, by income and yields a number of predictions for the distribution of income by entrepreneurial status. Using a data set of Stanford alumni, the predictions are tested and found to hold. In particular, by far the most important determinant of entrepreneurship is having background in a large number of different roles. Further, income distribution predictions, e.g., that there are a disproportionate number of entrepreneurs in the upper tail of the distribution, are borne out.
Keywords: Entrepreneurship; Skills; Income Distribution
JEL Codes: J4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| skill balance (J24) | entrepreneurial likelihood (L26) |
| occupation type (R29) | entrepreneurial supply (D26) |
| higher income (D31) | proportion of entrepreneurs (L26) |
| complexity of production process (L23) | entrepreneurial supply (D26) |
| ability distribution (D39) | income distribution (D31) |