The Roots of Entrepreneurship and Labour Demand: Individual Ability and Low Risk Aversion

C. M. Van Praag*, J. S. Cramer

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

This paper develops a model as a means to explain business formation and the labour demand of entrepreneurs. An individual will become an entrepreneur if the expected rewards surpass the wages of employment, and the expected rewards depend on an assessment of individual ability and on risk attitude. Actual ability determines success and hence the demand for wage labour of the firm. In equilibrium these factors govern the distribution of a given workforce over entrepreneurs and employees. The model is fitted to Dutch survey data. The empirical results confirm the importance of both risk-taking and ability for successful entrepreneurship.

Original languageEnglish
Pages (from-to)45-62
Number of pages18
JournalEconomica
Volume68
Issue number2691
Publication statusPublished - 28 Apr 2001
Externally publishedYes

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