Events at CERGE-EI

Piotr Denderski

VU Amsterdam, The Netherlands

Author: Piotr Denderski

Abstract: Should young people be encouraged to become entrepreneurs?  The theory of occupational choice of Miller (1984) prescribes experimenting with more uncertain jobs at the early stage of one’s career for the sake of fast identification of one’s comparative advantages. According to the theory, there is value in learning even in the case of entrepreneurial failure. However, in the data entrepreneurs keep on running under-performing businesses, not switching to payroll jobs, which puts entrepreneurial learning in question. I argue it is the more complex “jack of all trades” nature of entrepreneurship that is behind this fact. In my model, income of employees depends only on their ability while entrepreneurial income depends jointly on the ability and the business acumen. Both the factors are uncertain and agents learn about them through noisy production. Entrepreneurial income only provides one signal on two unobservables. Entrepreneurs who overestimate their acumen assign a fraction of disappointing performance to their ability which may lead to postponing the termination of their business.

JEL  classification: E24, J24, J64, L26

Keywords:  entrepreneurship, mismatch, learning

Full Text:  “A Model of Confounded Entrepreneurial Choice”