Entrepreneurship and organization design

Christian Roessler, Philipp Koellinger*

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

We model entrepreneurship and the emergence of firms as an outcome of simultaneous bidding for labor services among heterogeneous agents. What distinguishes our approach from prior work is that occupational choice and job matching are determined simultaneously, so that the opportunity costs of entrepreneurs are accounted for. Those who are relatively unmanageable, while possibly excellent managers themselves, become entrepreneurs. Entrepreneurs compete and create value by building efficient organizations and offering potentially well-paid jobs to others. While the entry of an additional entrepreneur typically reduces some individual wages, we show that it always raises the average wage and depresses the average income of incumbent entrepreneurs. This result may help explain the empirically low returns to entrepreneurship.

Original languageEnglish
Pages (from-to)888-902
Number of pages15
JournalEuropean Economic Review
Volume56
Issue number4
DOIs
Publication statusPublished - 1 May 2012

Keywords

  • D20
  • Entrepreneurship
  • J24
  • J31
  • L23
  • L26
  • Organization design
  • Profits
  • Wages

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