Entrepreneurship and Financial Incentives of Return, Risk, and Skew

Peter Berkhout, Joop Hartog, Mirjam Van Praag

    Research output: Contribution to journalJournal articleResearchpeer-review

    Abstract

    We focus on the role of the opportunity cost in the choice for entrepreneurship in favor of wage employment, that is, the wages given up as an employee. We argue that just like outside observers, potential entrepreneurs will face great difficulty to predict their earnings from entrepreneurship. The focus on earnings forgone may help to solve the lack of robust empirical support for the effect of financial incentives on the decision to become an entrepreneur. We find, consistent with standard theory, that a higher mean, lower variance, and higher skew in the relevant wage distribution reduce the likelihood of entrepreneurship.
    We focus on the role of the opportunity cost in the choice for entrepreneurship in favor of wage employment, that is, the wages given up as an employee. We argue that just like outside observers, potential entrepreneurs will face great difficulty to predict their earnings from entrepreneurship. The focus on earnings forgone may help to solve the lack of robust empirical support for the effect of financial incentives on the decision to become an entrepreneur. We find, consistent with standard theory, that a higher mean, lower variance, and higher skew in the relevant wage distribution reduce the likelihood of entrepreneurship.
    LanguageEnglish
    JournalEntrepreneurship: Theory and Practice
    Volume40
    Issue number2
    Pages249-268
    Number of pages20
    ISSN1042-2587
    DOIs
    StatePublished - 2016

    Cite this

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    abstract = "We focus on the role of the opportunity cost in the choice for entrepreneurship in favor of wage employment, that is, the wages given up as an employee. We argue that just like outside observers, potential entrepreneurs will face great difficulty to predict their earnings from entrepreneurship. The focus on earnings forgone may help to solve the lack of robust empirical support for the effect of financial incentives on the decision to become an entrepreneur. We find, consistent with standard theory, that a higher mean, lower variance, and higher skew in the relevant wage distribution reduce the likelihood of entrepreneurship.",
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    Entrepreneurship and Financial Incentives of Return, Risk, and Skew. / Berkhout, Peter; Hartog, Joop; Van Praag, Mirjam.

    In: Entrepreneurship: Theory and Practice, Vol. 40, No. 2, 2016, p. 249-268.

    Research output: Contribution to journalJournal articleResearchpeer-review

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    AU - Hartog,Joop

    AU - Van Praag,Mirjam

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    AB - We focus on the role of the opportunity cost in the choice for entrepreneurship in favor of wage employment, that is, the wages given up as an employee. We argue that just like outside observers, potential entrepreneurs will face great difficulty to predict their earnings from entrepreneurship. The focus on earnings forgone may help to solve the lack of robust empirical support for the effect of financial incentives on the decision to become an entrepreneur. We find, consistent with standard theory, that a higher mean, lower variance, and higher skew in the relevant wage distribution reduce the likelihood of entrepreneurship.

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